Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – The Ultimate Guide

At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The fresh cryptocurrency came a long way from trading below $Four just two years ago. Major online and offline retailers are commencing to add the fresh currency as a payment method. But what exactly is bitcoin?

According to a latest Bloomberg poll, only forty two percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

Bitcoin is a peer-to-peer digital currency launched in two thousand nine by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for two years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

‘’It might make sense just to get some in case it catches on’’

Satoshi Nakamoto, January 17th, 2009.

What’s so special about Bitcoin?

Bitcoin is a cryptocurrency and a fresh and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a totally electronic form of money.

Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can loosely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send one bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

What’s so special about Bitcoin? There are many arguments on whether the fresh virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is rigorously with the profit opportunities provided by this fresh payment phenomenon. In the next few pages on the fresh digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

Bitcoin Basics

Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle boys or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, totally eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also permits the bypassing of capital and AML limitations.

In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How to get a bitcoin address

Like we mentioned previously, in order to send or receive bitcoins you will need to have a bitcoin address. You can get a bitcoin address either by downloading the bitcoin client or by getting an online wallet. The two most popular btc clients are Bitcoin-qt and Multibit. The main difference inbetween these two clients is in the size of the block chain that needs to be downloaded. If you determine to go with Bitcoin-qt, have at least ten Gigabytes free space on your hard drive for the block chain. As Bitcoin-qt is the ‘’official’’ bitcoin client, if you can spare ten GB, go for this option. Here’s a page that has step by step instructions on installing Bitcoin-qt.

Multibit is a lightweight version of the bitcoin client. You can read more about it here.

Where are my bitcoins stored?

But where are the bitcoins actually stored? After you install one of the two clients above, you can find your bitcoins in a file called wallet.dat. If you use windows this file will be located in the application data section. If your computer gets stolen or lost and you haven’t made a copy of the wallet.dat file you will lose your bitcoins. It is always recommend to backup this file.

The bitcoins can also be stored in online wallets. There are specialized websites that suggest bitcoin wallet services. However due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can lightly store them offline on your computer. Wallets can be useful for storing petite sums of bitcoins so that you can make quick online purchases. Some of the more popular wallet services are Blockchain and CoinKite.

Btc exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually over 90% of the bitcoins deposited on an exchange are kept offline. A petite five to 10% reserve is kept onsite for instantaneous redemption purposes. There are slew of guides online on how to store/secure bitcoins, go over them. It’s always safer to take care of this process yourself then to trust a third party with a substantial amount of bitcoins.

Bitcoin Advantages

Bitcoin has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of limitations.

Another major plus of the fresh cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions totally free of charge, it is recommended to pay the puny fee in order to speed up the sending process.

The fee amount depends on the data size of the transaction. A typical transaction is five hundred bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents.

Because the fee is fully dependent on a transaction’s data size and not on the number of bitcoins being sent, a $Ten transfer will carry the same fee as a $Ten Million transfer. The fee will take a 0.913% lump of a $Ten transfer but that same fee will only take 0.000000913% of a ten Million transfer.

Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can suggest their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.

Bitcoin and transparency

The picture above shows some of the latest large transactions recorded in the block chain. The very first transaction is for two hundred five BTC, the equivalent of $187,165 at today’s prices. The long lines of letters and numbers you see in the pic are bitcoin addresses. A bitcoin address consists of 27-34 alphanumeric characters, beginning with the number one or Trio. You can have as many addresses as you want, they’re free and effortless to generate.

Notice that there is no name that goes along with the bitcoin address. This is what outside observers mean when they say ‘’ Bitcoin is anonymous’’. Bitcoin is in fact ‘’pseudo anonymous’’. While all bitcoin addresses and transactions are public, the holders of those addresses remain hidden.

The only thing that can be discerned by looking at the block chain is that address 1XXxxxXXXxxxxxxXX sent one hundred Bitcoins to address 3XXxxxXXXxxXXxxXX at a certain time. Who sent the coins, the reason for sending, and the users location is not exposed.

However, keep in mind that as soon as you connect your bitcoin address to your real identity (for example, by purchasing bitcoins online or in a face to face meeting), the pseudo anonymity provided by bitcoin is lost. There are ways to regain the lost anonymity but that is beyond the scope of this introductory article.

Buying Your Very first Bitcoin

But how can you actually get a hold of a bitcoin? The easiest way to acquire bitcoins is to buy them at an online exchange. There are three major bitcoin exchanges, each of them with their own unique properties and a different fee structure.

If you’re European, Bitstamp is your best bet to get some bitcoins at a low cost. The company is based in Slovenia, part of the EU. Deposits by SEPA are free, withdrawals are charged a motionless 0.90€ fee once the funds are converted to Euros. Because Bitstamp only offers trading in BTC/USD (Bitcoin versus the US Dollar) all Euro transfers are instantly converted to Dollars. If you want to withdraw by SEPA, you have to convert your funds back to Euros.

The fee structure favours big traders and market makers. The basic fee for fresh accounts starts at 0.5% and goes all the way down to 0.2% if you trade over $150,000 in one month.

Yes forex traders, you heard that right, the LOWEST fee structure is 0.Two percent. The 0.2% charge is per side, so you will get hit with this fee whenever you buy or sell bitcoins.

Fortunately, the spread inbetween the bid and the ask price is very low, most of the time ranging inbetween one and two dollars. At a current bitcoin rate of $819, this amounts to an added cost of 0.1 to 0.25%. You only pay the spread if you want to come in a trade right away with a market order. If you placed a limit order to buy and you’re willing to wait until someone wants to sell, you can purchase your bitcoins at a petite discount at the bid and later sell them at the ask, pocketing the spread in the process.

Bitstamp has largely avoided the deposit and withdrawal problems that plague many bitcoin exchanges. With a lack of regulation on the upcoming virtual currency and its checkered past, many financial institutions remain reluctant to get involved with processing bitcoin related transactions. You can deposit funds in USD, EUR, GBP and CHF. US clients are accepted.

Coinbase is very likely the easiest and safest way to purchase bitcoins in the U.S. Unlike BitStamp, Coinbase is not an exchange. They act as a counter-party to all customer trades, you buy or sell your bitcoins directly to Coinbase. The buy/sell fee is 1% on top of the buy/sell spread. The bid/ask is usually close to BitStamp where the rigid gets its liquidity from. For example, the current bid is at $635.48 and the current ask is $638.07. In addition to this, the hard has daily thresholds on the amount of bitcoins bought/sold. These boundaries are not applied on the individual level. Basically Coinbase has a set amount of bitcoins that it is willing to buy or sell every day. During times or high volatility, users may not be able to buy/sell bitcoins until Coinbase determines to ‘’refill’’ their stock. Here’s a good explanation on this issue from their Customer Support:

‘’The limit you’re eyeing is Coinbase’s daily limit being reached, not your individual limit. Sometimes the Coinbase site itself will run into a daily rolling limit on purchases or sales if there is an exceptional amount of activity in the bitcoin markets. We put up this makeshift pause to make sure that we have enough funds to accommodate the transfer orders being created. This should be a uncommon exception rather than the general rule however. There is no specific time of the day where this limit starts – it’s on a twenty four hour rolling basis. It might be best to check in at 6am or 7am Eastern Standard Time tomorrow. Sorry for any inconvenience this has caused you – we know this can be frustrating. This is something we’re working on as we speak.’’

Coinbase claims that over 97% of all customer funds are stored offline in bank vaults to prevent theft or loss. If you live in the States, you can lightly link your bank account to Coinbase to facilitate quick and effortless bank transfers.

BTC-E.com

If you’re a forex trader, BTC-E is most likely the easiest exchange to get into. The company offers its own MetaTrader platform. The instrument comes with a leverage of three to one and the capability to brief bitcoin. Shorting is not an option at Bitstamp. You can still sell any bitcoins you already own at these exchanges but you won’t be able to brief bitcoin outright.

The fees on MetaTrader are slightly higher, 0.3% per side compared to 0.2% if you used btc-e’s web interface. If you’re a forex trader btc-e might strike you as the best option of the three. But alas, nothing is as straightforward in bitcoin world.

No one knows who the real owners behind btc-e are. Evidently the headquarters of the company are in Bulgaria and the support staff is more familiar with Russian then with English, but the rest is a mystery. The company operates a complicated deposit and withdrawal process that relays the money through several banks and payment processors before depositing them to your account. If you plan to deposit on BTC-E, make sure to go after their deposit instructions to the letter. Because the deposits go through a web of banks, tracking down a lost deposit is near to unlikely.

On the plus side, the company does suggest deposit and withdrawal by several popular e-wallets like Webmoney, PerfectMoney, Ukash and Paypal (withdrawal only $500 minimum). According to user reviews, deposits and withdrawal by these methods are a lot swifter and smoother compared to bank wires.

BTC-E does accept US clients. However, commencing from the middle of December 2013, the company stopped processing US dollar wires or any wires connected to a US bank. Here is an email reply to a customer’s question on this: ‘’We don’t accept international wire transfers from US Citizens or from US Banks. All transfers from US Citizens or US Bank will be refused by bank.’’

Other ways to purchase bitcoins

Aside from the exchanges, you can also buy bitcoins on ebay and similar auction sites. Keep in mind that due to the possibility for chargebacks and fraud, bitcoin and other cryptocurrencies trade at a premium on ebay. Face to face meetups are another option to acquire bitcoins. Check localbitcoins.com for bitcoin sellers and buyers near your area. Always exercise caution when doing an offline exchange. Meet during the daytime and in places with a lot of people around. If possible, bring a friend.

We’ll leave the choice of where to buy your very first bitcoin up to you, we hope that our presentation relayed enough information to help you make an informed decision. It all depends on your needs and requirements. Some exchanges are better for trading, others have superior banking relations with bankwire deposit and withdrawal options.

Leveraged Bitcoin Trading

In this section we’ll go over several options for trading bitcoin on margin. We’ll also outline the options to brief the virtual currency. Before we go any further, a caution is in order. Bitcoin prices are very volatile. Prices rose from a low of 195.50 on November 1st to a high of 1,090 by November 30th 2013. From here, the btc price crashed to a low of four hundred twenty on December 18th, only to go back up and retest the 1,000 level in January of this year. One bitcoin is presently worth 825.88 on btc-e. The chart below demonstrates this volatility.

Unlike major forex currency pairs which hardly stir one percent per day, bitcoin prices can rise or fall over thirty percent in a single day. If you know how to trade, you don’t truly need any leverage to make money with bitcoin. With that caution out of the way, let’s get down to business and go over some of the options for leveraged btc trading.

We already wrote about one of the more competitive options for shorting bitcoin and leveraged trading, BTC-E. The Bulgarian exchange offers the popular MetaTrader platform with three to one leverage, shorting capability and a low fee of 0.Trio percent per side.

AVA Trade

AVA Trade is a forex broker that offers bitcoin trading through a CFD. Two bitcoin CFDs are available, Bitcoin Mini and Bitcoin Weekly. The Bitcoin Weekly CFD has a twenty to one leverage and expires every Friday at 21:00 GMT. The Bitcoin Mini only has a two to one leverage but doesn’t expire. Both contracts are using data from BTC-E and AVA Trade adds around Ten$ premium on top of the exchange spread. You can find more about the bitcoin trading conditions here. Here’s a snapshot of AvaTrade’s MT4.

A major flaw of both contracts is the inability to trade them during the weekend. Bitcoin trading is totally decentralized and doesn’t rely on a network of banks for executing trades thus there is no set open and closing time. Unlike forex which trades 24/Five, bitcoin trades 24/7 (except on AvaTrade). As can be seen on the chart, large gaps are frequent on AVA Trade’s Bitcoin CFD due to this policy. AvaTrade does not accept US clients at this time.

Etoro.com

Etoro.com is one of the latest forex brokers to suggest bitcoin trading. Unluckily, the product is not very suitable for day trading as you can only come in and exit the market four times per day. It uses the BitStamp’s data feed as a price reference. You can read more about Etoro’s bitcoin suggest here. Here’s a snapshot of their bitcoin CFD in act:

Unluckily despite having a dedicated US part of the site (link to http://www.etoro.com/usa) , eToro doesn’t seem to accept US clients at this time. Here’s a part of the Q&A section that deals with this question: ‘’As part of our ongoing optimization process presently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting fresh clients or funds from existing US customers. While you’re here, you are welcome to proceed experiencing eToro through our practice mode, which will stay available and free to all.’’’

Btc.sx

Btc.sx offers a ten to one leveraged product based on BitStamp’s data feed. Similarly to Ava Trade, Btc.sx adds around Ten$ to the spread at BitStamp. You will need a deposit of at least 0.01033 of a bitcoin in order to trade at Btc.sx. At current bitcoin prices of $638, this amounts to around 6.Trio$. Btc.sx is dually incorporated in England and Singapore. The exchange presently accepts only bitcoin deposits, no fiat currency deposits are permitted.

The pic above shows a bitcoin long position. Btc.sx has several confinements that make trading with leverage problematic. The exchange doesn’t support moving the stoploss after entry. When contacted about this, their support team told us that ‘’this feature will be implemented in the next few months’’. Our question is why isn’t it already implemented?

As you can see on the picture, you can only set the stoploss as a distance from the current price (in the pic this is set as fifty points). The default is eighty eight points below entry. This is exactly where my stop was, eighty eight points below nine hundred thirty five at 847. There is a trailing stoploss option but despite my best efforts, I couldn’t make it work. So essentially, once you set your stoploss on Btc.sx, you’re stuck with it.

The high rollover cost also makes leveraged trading at Btc.sx problematic. The currency rollover cost for my position was 0.0094 of a bitcoin, that’s 8.8 US Dollars, far too high for a 1,000 usd position in my opinion. Because the company only permits deposits and withdrawals in bitcoin, it has largely avoided the US Dollar deposit/withdrawal issues encountered by other btc exchanges. Btc.sx does permit US clients.

Bitcoin Options

Besides CFDs, the fresh cryptocurrency has also helped spawn a fresh options market. Presently several companies are in the business of suggesting Bitcoin options. Anyoption.com is one of the more established option houses that offers trading in the virtual currency. You can bet on rising or falling bitcoin prices. Anyoption.com is not an option for US clients, the company doesn’t accept USA traders at the moment. Here are some of the current btc options on suggest.

Predictious

Predictious.com is a betting websites that matches buyers and sellers and doesn’t price the options themselves. Besides betting on bitcoin’s demise or rally, you can also attempt to predict the next winner of the Oscars or bet on which party win control the US Senate after the two thousand fourteen elections. Presently the site takes bitcoin deposits only. Predictious does accept US clients.

What Drives Bitcoin Prices?

Regulation and other deeds by government entities has one of the largest impacts on the price of bitcoin. The US and Chinese governments are the ones to see. Somewhat favorable comments by US lawmakers in November and December of last year underpinned the bitcoin rally.

At a Senate committee hearing last month a Justice Department official said that ‘’bitcoins can be a legal means of exchange’’. The fresh cryptocurrency can be exploited by ‘’malicious actors’’ and should be subject to ‘’rules to protect people’’, the agency added.

Enhanced bitcoin purchases from China and the adoption of the currency by Chinese online businesses were another driver that helped thrust the BTC/USD price from 195.Five at the embark of November to a high of $1090 thirty days later. Baidu, the thickest Chinese search engine embarked to suggest payments in bitcoin. The chart below shows the remarkable November rally.

The muffle of the Chinese authorities was seen as a subtle acceptance signal by market participants. The situation didn’t last long however. On December 7th, The People’s Bank of China barred financial institutions from buying or selling virtual currency or Bitcoin related products. The Bank also demanded that businesses stop with the practice of pricing their products in Bitcoins. BTC/USD opened the day at $906.50 on BTC-E. After the news hit the wires, bitcoin prices crashed from to a low of $551 in only nine hours, a fall of 39%.

December 7th is marked with a yellow rectangle on the chart above. After a petite dead cat bounce to $970 in the next few days, bitcoin prices resumed their decline. BTC/USD marked an interim low of $420 US dollars for one bitcoin on December 18th.

Enhanced Adoption and an Expanding Marketplace

At the commence of 2012, one bitcoin was worth exactly $Four.72. One year later a chunk of the fresh currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.

With the two thousand eight financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to capture is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very plain, enlargened adoption of the cryptocurrency.

According to BitPay, a Bitcoin Payment Service Provider, as of November two thousand thirteen there are over 14,000 merchants presently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay enlargened tenfold in two thousand fourteen and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only ninety nine transactions the year prior.

Some of the notable adopters as of late include Richard Branson’s Cherry Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, suggested the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also embarking to accept the fresh currency as a means for payment.

All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this fresh phenomenon will have a gam up over their competition going forward.

Usage in outlawed activities

The third fattest fundamental driver of bitcoin prices is the enlargened (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment limitations and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over Ten,000 products for sale, 70% of which were drugs that are illegal in most countries. Around three hundred forty different varieties of drugs were suggested on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on two October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Fear Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking disturbance. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately Three.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.

The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an chance to buy some cheap bitcoins. Prices were back to one hundred eighteen two days later.

The 2nd yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally commenced right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a implement for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses embarked accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than eight hundred purchases using Bitcoin on the very first day they commenced suggesting the fresh payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the very first fourteen days since the fresh payment option was suggested.

But what about the supply side?

Traders with practice in other commodity markets are very likely asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an influence on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a large oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in two thousand fourteen after going up 11.11% last year. The rate of block creation is six per hour with each block worth twenty five bitcoins (around 25k USD). If more mining power goes online and the block generation increases to seven blocks per hour for example, the so called “mining difficulty” will go up until the six blocks per hour average is reaffirmed. On the other arm if miners generate less coins then the difficulty will go down making it lighter to generate fresh coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the fresh cryptocurrency was also kicking off to attract the attention of Wall Street. Wedbush Securities, a little known analyst rock-hard put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by ten to one hundred times its current value as the fresh technology partly substitutes traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around twelve Million bitcoins presently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a two to three percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least two percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is presently predominated by large players like Western Union and MoneyGram, WU for example can earn upwards of ten percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than five percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around nine cents at current btc prices.

Extra Bitcoin Resources

There are slew of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides ordinary instructions for setting up your very first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Slew of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the fresh currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from one minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, one mBTC = 0.001 BTC. They still suggest the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates concentrates on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are very likely familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – The Ultimate Guide

At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The fresh cryptocurrency came a long way from trading below $Four just two years ago. Major online and offline retailers are commencing to add the fresh currency as a payment method. But what exactly is bitcoin?

According to a latest Bloomberg poll, only forty two percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

Bitcoin is a peer-to-peer digital currency launched in two thousand nine by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for two years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

‘’It might make sense just to get some in case it catches on’’

Satoshi Nakamoto, January 17th, 2009.

What’s so special about Bitcoin?

Bitcoin is a cryptocurrency and a fresh and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a entirely electronic form of money.

Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can loosely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send one bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

What’s so special about Bitcoin? There are many arguments on whether the fresh virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is stringently with the profit opportunities provided by this fresh payment phenomenon. In the next few pages on the fresh digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

Bitcoin Basics

Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle dudes or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, downright eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also permits the bypassing of capital and AML confinements.

In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How to get a bitcoin address

Like we mentioned previously, in order to send or receive bitcoins you will need to have a bitcoin address. You can get a bitcoin address either by downloading the bitcoin client or by getting an online wallet. The two most popular btc clients are Bitcoin-qt and Multibit. The main difference inbetween these two clients is in the size of the block chain that needs to be downloaded. If you determine to go with Bitcoin-qt, have at least ten Gigabytes free space on your hard drive for the block chain. As Bitcoin-qt is the ‘’official’’ bitcoin client, if you can spare ten GB, go for this option. Here’s a page that has step by step instructions on installing Bitcoin-qt.

Multibit is a lightweight version of the bitcoin client. You can read more about it here.

Where are my bitcoins stored?

But where are the bitcoins actually stored? After you install one of the two clients above, you can find your bitcoins in a file called wallet.dat. If you use windows this file will be located in the application data section. If your computer gets stolen or lost and you haven’t made a copy of the wallet.dat file you will lose your bitcoins. It is always recommend to backup this file.

The bitcoins can also be stored in online wallets. There are specialized websites that suggest bitcoin wallet services. However due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can lightly store them offline on your computer. Wallets can be useful for storing puny sums of bitcoins so that you can make quick online purchases. Some of the more popular wallet services are Blockchain and CoinKite.

Btc exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually over 90% of the bitcoins deposited on an exchange are kept offline. A petite five to 10% reserve is kept onsite for instant redemption purposes. There are slew of guides online on how to store/secure bitcoins, go over them. It’s always safer to take care of this process yourself then to trust a third party with a substantial amount of bitcoins.

Bitcoin Advantages

Bitcoin has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of limitations.

Another major plus of the fresh cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions downright free of charge, it is recommended to pay the petite fee in order to speed up the sending process.

The fee amount depends on the data size of the transaction. A typical transaction is five hundred bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents.

Because the fee is fully dependent on a transaction’s data size and not on the number of bitcoins being sent, a $Ten transfer will carry the same fee as a $Ten Million transfer. The fee will take a 0.913% chunk of a $Ten transfer but that same fee will only take 0.000000913% of a ten Million transfer.

Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can suggest their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.

Bitcoin and transparency

The picture above shows some of the latest large transactions recorded in the block chain. The very first transaction is for two hundred five BTC, the equivalent of $187,165 at today’s prices. The long lines of letters and numbers you see in the pic are bitcoin addresses. A bitcoin address consists of 27-34 alphanumeric characters, beginning with the number one or Trio. You can have as many addresses as you want, they’re free and effortless to generate.

Notice that there is no name that goes along with the bitcoin address. This is what outside observers mean when they say ‘’ Bitcoin is anonymous’’. Bitcoin is in fact ‘’pseudo anonymous’’. While all bitcoin addresses and transactions are public, the holders of those addresses remain hidden.

The only thing that can be discerned by looking at the block chain is that address 1XXxxxXXXxxxxxxXX sent one hundred Bitcoins to address 3XXxxxXXXxxXXxxXX at a certain time. Who sent the coins, the reason for sending, and the users location is not exposed.

However, keep in mind that as soon as you connect your bitcoin address to your real identity (for example, by purchasing bitcoins online or in a face to face meeting), the pseudo anonymity provided by bitcoin is lost. There are ways to regain the lost anonymity but that is beyond the scope of this introductory article.

Buying Your Very first Bitcoin

But how can you actually get a hold of a bitcoin? The easiest way to acquire bitcoins is to buy them at an online exchange. There are three major bitcoin exchanges, each of them with their own unique properties and a different fee structure.

If you’re European, Bitstamp is your best bet to get some bitcoins at a low cost. The company is based in Slovenia, part of the EU. Deposits by SEPA are free, withdrawals are charged a stationary 0.90€ fee once the funds are converted to Euros. Because Bitstamp only offers trading in BTC/USD (Bitcoin versus the US Dollar) all Euro transfers are instantaneously converted to Dollars. If you want to withdraw by SEPA, you have to convert your funds back to Euros.

The fee structure favours big traders and market makers. The basic fee for fresh accounts starts at 0.5% and goes all the way down to 0.2% if you trade over $150,000 in one month.

Yes forex traders, you heard that right, the LOWEST fee structure is 0.Two percent. The 0.2% charge is per side, so you will get hit with this fee whenever you buy or sell bitcoins.

Fortunately, the spread inbetween the bid and the ask price is very low, most of the time ranging inbetween one and two dollars. At a current bitcoin rate of $819, this amounts to an added cost of 0.1 to 0.25%. You only pay the spread if you want to inject a trade right away with a market order. If you placed a limit order to buy and you’re willing to wait until someone wants to sell, you can purchase your bitcoins at a petite discount at the bid and later sell them at the ask, pocketing the spread in the process.

Bitstamp has largely avoided the deposit and withdrawal problems that plague many bitcoin exchanges. With a lack of regulation on the upcoming virtual currency and its checkered past, many financial institutions remain reluctant to get involved with processing bitcoin related transactions. You can deposit funds in USD, EUR, GBP and CHF. US clients are accepted.

Coinbase is most likely the easiest and safest way to purchase bitcoins in the U.S. Unlike BitStamp, Coinbase is not an exchange. They act as a counter-party to all customer trades, you buy or sell your bitcoins directly to Coinbase. The buy/sell fee is 1% on top of the buy/sell spread. The bid/ask is usually close to BitStamp where the rigid gets its liquidity from. For example, the current bid is at $635.48 and the current ask is $638.07. In addition to this, the stiff has daily thresholds on the amount of bitcoins bought/sold. These boundaries are not applied on the individual level. Basically Coinbase has a set amount of bitcoins that it is willing to buy or sell every day. During times or high volatility, users may not be able to buy/sell bitcoins until Coinbase determines to ‘’refill’’ their stock. Here’s a good explanation on this issue from their Customer Support:

‘’The limit you’re observing is Coinbase’s daily limit being reached, not your private limit. Sometimes the Coinbase site itself will run into a daily rolling limit on purchases or sales if there is an exceptional amount of activity in the bitcoin markets. We put up this makeshift pause to make sure that we have enough funds to accommodate the transfer orders being created. This should be a infrequent exception rather than the general rule however. There is no specific time of the day where this limit starts – it’s on a twenty four hour rolling basis. It might be best to check in at 6am or 7am Eastern Standard Time tomorrow. Sorry for any inconvenience this has caused you – we know this can be frustrating. This is something we’re working on as we speak.’’

Coinbase claims that over 97% of all customer funds are stored offline in bank vaults to prevent theft or loss. If you live in the States, you can lightly link your bank account to Coinbase to facilitate quick and effortless bank transfers.

BTC-E.com

If you’re a forex trader, BTC-E is very likely the easiest exchange to get into. The company offers its own MetaTrader platform. The instrument comes with a leverage of three to one and the capability to brief bitcoin. Shorting is not an option at Bitstamp. You can still sell any bitcoins you already own at these exchanges but you won’t be able to brief bitcoin outright.

The fees on MetaTrader are slightly higher, 0.3% per side compared to 0.2% if you used btc-e’s web interface. If you’re a forex trader btc-e might strike you as the best option of the three. But alas, nothing is as straightforward in bitcoin world.

No one knows who the real owners behind btc-e are. Evidently the headquarters of the company are in Bulgaria and the support staff is more familiar with Russian then with English, but the rest is a mystery. The company operates a complicated deposit and withdrawal process that relays the money through several banks and payment processors before depositing them to your account. If you plan to deposit on BTC-E, make sure to go after their deposit instructions to the letter. Because the deposits go through a web of banks, tracking down a lost deposit is near to unlikely.

On the plus side, the company does suggest deposit and withdrawal by several popular e-wallets like Webmoney, PerfectMoney, Ukash and Paypal (withdrawal only $500 minimum). According to user reviews, deposits and withdrawal by these methods are a lot swifter and smoother compared to bank wires.

BTC-E does accept US clients. However, kicking off from the middle of December 2013, the company stopped processing US dollar wires or any wires connected to a US bank. Here is an email reply to a customer’s question on this: ‘’We don’t accept international wire transfers from US Citizens or from US Banks. All transfers from US Citizens or US Bank will be refused by bank.’’

Other ways to purchase bitcoins

Aside from the exchanges, you can also buy bitcoins on ebay and similar auction sites. Keep in mind that due to the possibility for chargebacks and fraud, bitcoin and other cryptocurrencies trade at a premium on ebay. Face to face meetups are another option to acquire bitcoins. Check localbitcoins.com for bitcoin sellers and buyers near your area. Always exercise caution when doing an offline exchange. Meet during the daytime and in places with a lot of people around. If possible, bring a friend.

We’ll leave the choice of where to buy your very first bitcoin up to you, we hope that our presentation relayed enough information to help you make an informed decision. It all depends on your needs and requirements. Some exchanges are better for trading, others have superior banking relations with bankwire deposit and withdrawal options.

Leveraged Bitcoin Trading

In this section we’ll go over several options for trading bitcoin on margin. We’ll also outline the options to brief the virtual currency. Before we go any further, a caution is in order. Bitcoin prices are very volatile. Prices rose from a low of 195.50 on November 1st to a high of 1,090 by November 30th 2013. From here, the btc price crashed to a low of four hundred twenty on December 18th, only to go back up and retest the 1,000 level in January of this year. One bitcoin is presently worth 825.88 on btc-e. The chart below demonstrates this volatility.

Unlike major forex currency pairs which scarcely stir one percent per day, bitcoin prices can rise or fall over thirty percent in a single day. If you know how to trade, you don’t truly need any leverage to make money with bitcoin. With that caution out of the way, let’s get down to business and go over some of the options for leveraged btc trading.

We already wrote about one of the more competitive options for shorting bitcoin and leveraged trading, BTC-E. The Bulgarian exchange offers the popular MetaTrader platform with three to one leverage, shorting capability and a low fee of 0.Trio percent per side.

AVA Trade

AVA Trade is a forex broker that offers bitcoin trading through a CFD. Two bitcoin CFDs are available, Bitcoin Mini and Bitcoin Weekly. The Bitcoin Weekly CFD has a twenty to one leverage and expires every Friday at 21:00 GMT. The Bitcoin Mini only has a two to one leverage but doesn’t expire. Both contracts are using data from BTC-E and AVA Trade adds around Ten$ premium on top of the exchange spread. You can find more about the bitcoin trading conditions here. Here’s a snapshot of AvaTrade’s MT4.

A major flaw of both contracts is the inability to trade them during the weekend. Bitcoin trading is downright decentralized and doesn’t rely on a network of banks for executing trades thus there is no set open and closing time. Unlike forex which trades 24/Five, bitcoin trades 24/7 (except on AvaTrade). As can be seen on the chart, large gaps are frequent on AVA Trade’s Bitcoin CFD due to this policy. AvaTrade does not accept US clients at this time.

Etoro.com

Etoro.com is one of the latest forex brokers to suggest bitcoin trading. Unluckily, the product is not very suitable for day trading as you can only inject and exit the market four times per day. It uses the BitStamp’s data feed as a price reference. You can read more about Etoro’s bitcoin suggest here. Here’s a snapshot of their bitcoin CFD in activity:

Unluckily despite having a dedicated US part of the site (link to http://www.etoro.com/usa) , eToro doesn’t seem to accept US clients at this time. Here’s a part of the Q&A section that deals with this question: ‘’As part of our ongoing optimization process presently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting fresh clients or funds from existing US customers. While you’re here, you are welcome to proceed experiencing eToro through our practice mode, which will stay available and free to all.’’’

Btc.sx

Btc.sx offers a ten to one leveraged product based on BitStamp’s data feed. Similarly to Ava Trade, Btc.sx adds around Ten$ to the spread at BitStamp. You will need a deposit of at least 0.01033 of a bitcoin in order to trade at Btc.sx. At current bitcoin prices of $638, this amounts to around 6.Three$. Btc.sx is dually incorporated in England and Singapore. The exchange presently accepts only bitcoin deposits, no fiat currency deposits are permitted.

The pic above shows a bitcoin long position. Btc.sx has several confinements that make trading with leverage problematic. The exchange doesn’t support moving the stoploss after entry. When contacted about this, their support team told us that ‘’this feature will be implemented in the next few months’’. Our question is why isn’t it already implemented?

As you can see on the picture, you can only set the stoploss as a distance from the current price (in the pic this is set as fifty points). The default is eighty eight points below entry. This is exactly where my stop was, eighty eight points below nine hundred thirty five at 847. There is a trailing stoploss option but despite my best efforts, I couldn’t make it work. So essentially, once you set your stoploss on Btc.sx, you’re stuck with it.

The high rollover cost also makes leveraged trading at Btc.sx problematic. The currency rollover cost for my position was 0.0094 of a bitcoin, that’s 8.8 US Dollars, far too high for a 1,000 usd position in my opinion. Because the company only permits deposits and withdrawals in bitcoin, it has largely avoided the US Dollar deposit/withdrawal issues encountered by other btc exchanges. Btc.sx does permit US clients.

Bitcoin Options

Besides CFDs, the fresh cryptocurrency has also helped spawn a fresh options market. Presently several companies are in the business of suggesting Bitcoin options. Anyoption.com is one of the more established option houses that offers trading in the virtual currency. You can bet on rising or falling bitcoin prices. Anyoption.com is not an option for US clients, the company doesn’t accept USA traders at the moment. Here are some of the current btc options on suggest.

Predictious

Predictious.com is a betting websites that matches buyers and sellers and doesn’t price the options themselves. Besides betting on bitcoin’s demise or rally, you can also attempt to predict the next winner of the Oscars or bet on which party win control the US Senate after the two thousand fourteen elections. Presently the site takes bitcoin deposits only. Predictious does accept US clients.

What Drives Bitcoin Prices?

Regulation and other deeds by government entities has one of the largest impacts on the price of bitcoin. The US and Chinese governments are the ones to see. Somewhat favorable comments by US lawmakers in November and December of last year underpinned the bitcoin rally.

At a Senate committee hearing last month a Justice Department official said that ‘’bitcoins can be a legal means of exchange’’. The fresh cryptocurrency can be exploited by ‘’malicious actors’’ and should be subject to ‘’rules to protect people’’, the agency added.

Enhanced bitcoin purchases from China and the adoption of the currency by Chinese online businesses were another driver that helped shove the BTC/USD price from 195.Five at the commence of November to a high of $1090 thirty days later. Baidu, the fattest Chinese search engine embarked to suggest payments in bitcoin. The chart below shows the remarkable November rally.

The muffle of the Chinese authorities was seen as a subtle acceptance signal by market participants. The situation didn’t last long however. On December 7th, The People’s Bank of China barred financial institutions from buying or selling virtual currency or Bitcoin related products. The Bank also demanded that businesses stop with the practice of pricing their products in Bitcoins. BTC/USD opened the day at $906.50 on BTC-E. After the news hit the wires, bitcoin prices crashed from to a low of $551 in only nine hours, a fall of 39%.

December 7th is marked with a yellow rectangle on the chart above. After a puny dead cat bounce to $970 in the next few days, bitcoin prices resumed their decline. BTC/USD marked an interim low of $420 US dollars for one bitcoin on December 18th.

Enhanced Adoption and an Expanding Marketplace

At the commence of 2012, one bitcoin was worth exactly $Four.72. One year later a chunk of the fresh currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.

With the two thousand eight financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to capture is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very elementary, enlargened adoption of the cryptocurrency.

According to BitPay, a Bitcoin Payment Service Provider, as of November two thousand thirteen there are over 14,000 merchants presently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay enlargened tenfold in two thousand fourteen and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only ninety nine transactions the year prior.

Some of the notable adopters as of late include Richard Branson’s Cherry Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, suggested the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also commencing to accept the fresh currency as a means for payment.

All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this fresh phenomenon will have a gam up over their competition going forward.

Usage in outlawed activities

The third largest fundamental driver of bitcoin prices is the enhanced (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment confinements and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over Ten,000 products for sale, 70% of which were drugs that are illegal in most countries. Around three hundred forty different varieties of drugs were suggested on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on two October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Fear Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking disturbance. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately Trio.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.

The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an chance to buy some cheap bitcoins. Prices were back to one hundred eighteen two days later.

The 2nd yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally commenced right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a device for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses commenced accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than eight hundred purchases using Bitcoin on the very first day they embarked suggesting the fresh payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the very first fourteen days since the fresh payment option was suggested.

But what about the supply side?

Traders with practice in other commodity markets are very likely asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an influence on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a yam-sized oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in two thousand fourteen after going up 11.11% last year. The rate of block creation is six per hour with each block worth twenty five bitcoins (around 25k USD). If more mining power goes online and the block generation increases to seven blocks per hour for example, the so called “mining difficulty” will go up until the six blocks per hour average is reaffirmed. On the other forearm if miners generate less coins then the difficulty will go down making it lighter to generate fresh coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the fresh cryptocurrency was also kicking off to attract the attention of Wall Street. Wedbush Securities, a little known analyst rock hard put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by ten to one hundred times its current value as the fresh technology partly substitutes traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around twelve Million bitcoins presently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a two to three percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least two percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is presently predominated by large players like Western Union and MoneyGram, WU for example can earn upwards of ten percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than five percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around nine cents at current btc prices.

Extra Bitcoin Resources

There are slew of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides ordinary instructions for setting up your very first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Slew of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the fresh currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from one minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, one mBTC = 0.001 BTC. They still suggest the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates concentrates on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are very likely familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – The Ultimate Guide

At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The fresh cryptocurrency came a long way from trading below $Four just two years ago. Major online and offline retailers are kicking off to add the fresh currency as a payment method. But what exactly is bitcoin?

According to a latest Bloomberg poll, only forty two percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

Bitcoin is a peer-to-peer digital currency launched in two thousand nine by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for two years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

‘’It might make sense just to get some in case it catches on’’

Satoshi Nakamoto, January 17th, 2009.

What’s so special about Bitcoin?

Bitcoin is a cryptocurrency and a fresh and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a downright electronic form of money.

Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can loosely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send one bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

What’s so special about Bitcoin? There are many arguments on whether the fresh virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is stringently with the profit opportunities provided by this fresh payment phenomenon. In the next few pages on the fresh digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

Bitcoin Basics

Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle dudes or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, totally eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also permits the bypassing of capital and AML confinements.

In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How to get a bitcoin address

Like we mentioned previously, in order to send or receive bitcoins you will need to have a bitcoin address. You can get a bitcoin address either by downloading the bitcoin client or by getting an online wallet. The two most popular btc clients are Bitcoin-qt and Multibit. The main difference inbetween these two clients is in the size of the block chain that needs to be downloaded. If you determine to go with Bitcoin-qt, have at least ten Gigabytes free space on your hard drive for the block chain. As Bitcoin-qt is the ‘’official’’ bitcoin client, if you can spare ten GB, go for this option. Here’s a page that has step by step instructions on installing Bitcoin-qt.

Multibit is a lightweight version of the bitcoin client. You can read more about it here.

Where are my bitcoins stored?

But where are the bitcoins actually stored? After you install one of the two clients above, you can find your bitcoins in a file called wallet.dat. If you use windows this file will be located in the application data section. If your computer gets stolen or lost and you haven’t made a copy of the wallet.dat file you will lose your bitcoins. It is always recommend to backup this file.

The bitcoins can also be stored in online wallets. There are specialized websites that suggest bitcoin wallet services. However due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can lightly store them offline on your computer. Wallets can be useful for storing petite sums of bitcoins so that you can make quick online purchases. Some of the more popular wallet services are Blockchain and CoinKite.

Btc exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually over 90% of the bitcoins deposited on an exchange are kept offline. A petite five to 10% reserve is kept onsite for instant redemption purposes. There are slew of guides online on how to store/secure bitcoins, go over them. It’s always safer to take care of this process yourself then to trust a third party with a substantial amount of bitcoins.

Bitcoin Advantages

Bitcoin has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of confinements.

Another major plus of the fresh cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions totally free of charge, it is recommended to pay the petite fee in order to speed up the sending process.

The fee amount depends on the data size of the transaction. A typical transaction is five hundred bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents.

Because the fee is totally dependent on a transaction’s data size and not on the number of bitcoins being sent, a $Ten transfer will carry the same fee as a $Ten Million transfer. The fee will take a 0.913% chunk of a $Ten transfer but that same fee will only take 0.000000913% of a ten Million transfer.

Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can suggest their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.

Bitcoin and transparency

The picture above shows some of the latest large transactions recorded in the block chain. The very first transaction is for two hundred five BTC, the equivalent of $187,165 at today’s prices. The long lines of letters and numbers you see in the pic are bitcoin addresses. A bitcoin address consists of 27-34 alphanumeric characters, beginning with the number one or Three. You can have as many addresses as you want, they’re free and effortless to generate.

Notice that there is no name that goes along with the bitcoin address. This is what outside observers mean when they say ‘’ Bitcoin is anonymous’’. Bitcoin is in fact ‘’pseudo anonymous’’. While all bitcoin addresses and transactions are public, the holders of those addresses remain hidden.

The only thing that can be discerned by looking at the block chain is that address 1XXxxxXXXxxxxxxXX sent one hundred Bitcoins to address 3XXxxxXXXxxXXxxXX at a certain time. Who sent the coins, the reason for sending, and the users location is not exposed.

However, keep in mind that as soon as you connect your bitcoin address to your real identity (for example, by purchasing bitcoins online or in a face to face meeting), the pseudo anonymity provided by bitcoin is lost. There are ways to regain the lost anonymity but that is beyond the scope of this introductory article.

Buying Your Very first Bitcoin

But how can you actually get a hold of a bitcoin? The easiest way to acquire bitcoins is to buy them at an online exchange. There are three major bitcoin exchanges, each of them with their own unique properties and a different fee structure.

If you’re European, Bitstamp is your best bet to get some bitcoins at a low cost. The company is based in Slovenia, part of the EU. Deposits by SEPA are free, withdrawals are charged a motionless 0.90€ fee once the funds are converted to Euros. Because Bitstamp only offers trading in BTC/USD (Bitcoin versus the US Dollar) all Euro transfers are instantly converted to Dollars. If you want to withdraw by SEPA, you have to convert your funds back to Euros.

The fee structure favours big traders and market makers. The basic fee for fresh accounts starts at 0.5% and goes all the way down to 0.2% if you trade over $150,000 in one month.

Yes forex traders, you heard that right, the LOWEST fee structure is 0.Two percent. The 0.2% charge is per side, so you will get hit with this fee whenever you buy or sell bitcoins.

Fortunately, the spread inbetween the bid and the ask price is very low, most of the time ranging inbetween one and two dollars. At a current bitcoin rate of $819, this amounts to an added cost of 0.1 to 0.25%. You only pay the spread if you want to inject a trade right away with a market order. If you placed a limit order to buy and you’re willing to wait until someone wants to sell, you can purchase your bitcoins at a puny discount at the bid and later sell them at the ask, pocketing the spread in the process.

Bitstamp has largely avoided the deposit and withdrawal problems that plague many bitcoin exchanges. With a lack of regulation on the upcoming virtual currency and its checkered past, many financial institutions remain reluctant to get involved with processing bitcoin related transactions. You can deposit funds in USD, EUR, GBP and CHF. US clients are accepted.

Coinbase is most likely the easiest and safest way to purchase bitcoins in the U.S. Unlike BitStamp, Coinbase is not an exchange. They act as a counter-party to all customer trades, you buy or sell your bitcoins directly to Coinbase. The buy/sell fee is 1% on top of the buy/sell spread. The bid/ask is usually close to BitStamp where the rock hard gets its liquidity from. For example, the current bid is at $635.48 and the current ask is $638.07. In addition to this, the hard has daily boundaries on the amount of bitcoins bought/sold. These boundaries are not applied on the individual level. Basically Coinbase has a set amount of bitcoins that it is willing to buy or sell every day. During times or high volatility, users may not be able to buy/sell bitcoins until Coinbase determines to ‘’refill’’ their stock. Here’s a good explanation on this issue from their Customer Support:

‘’The limit you’re eyeing is Coinbase’s daily limit being reached, not your individual limit. Sometimes the Coinbase site itself will run into a daily rolling limit on purchases or sales if there is an exceptional amount of activity in the bitcoin markets. We put up this improvised pause to make sure that we have enough funds to accommodate the transfer orders being created. This should be a infrequent exception rather than the general rule however. There is no specific time of the day where this limit starts – it’s on a twenty four hour rolling basis. It might be best to check in at 6am or 7am Eastern Standard Time tomorrow. Sorry for any inconvenience this has caused you – we know this can be frustrating. This is something we’re working on as we speak.’’

Coinbase claims that over 97% of all customer funds are stored offline in bank vaults to prevent theft or loss. If you live in the States, you can lightly link your bank account to Coinbase to facilitate quick and effortless bank transfers.

BTC-E.com

If you’re a forex trader, BTC-E is very likely the easiest exchange to get into. The company offers its own MetaTrader platform. The instrument comes with a leverage of three to one and the capability to brief bitcoin. Shorting is not an option at Bitstamp. You can still sell any bitcoins you already own at these exchanges but you won’t be able to brief bitcoin outright.

The fees on MetaTrader are slightly higher, 0.3% per side compared to 0.2% if you used btc-e’s web interface. If you’re a forex trader btc-e might strike you as the best option of the three. But alas, nothing is as straightforward in bitcoin world.

No one knows who the real owners behind btc-e are. Evidently the headquarters of the company are in Bulgaria and the support staff is more familiar with Russian then with English, but the rest is a mystery. The company operates a complicated deposit and withdrawal process that relays the money through several banks and payment processors before depositing them to your account. If you plan to deposit on BTC-E, make sure to go after their deposit instructions to the letter. Because the deposits go through a web of banks, tracking down a lost deposit is near to unlikely.

On the plus side, the company does suggest deposit and withdrawal by several popular e-wallets like Webmoney, PerfectMoney, Ukash and Paypal (withdrawal only $500 minimum). According to user reviews, deposits and withdrawal by these methods are a lot quicker and smoother compared to bank wires.

BTC-E does accept US clients. However, commencing from the middle of December 2013, the company stopped processing US dollar wires or any wires connected to a US bank. Here is an email reply to a customer’s question on this: ‘’We don’t accept international wire transfers from US Citizens or from US Banks. All transfers from US Citizens or US Bank will be refused by bank.’’

Other ways to purchase bitcoins

Aside from the exchanges, you can also buy bitcoins on ebay and similar auction sites. Keep in mind that due to the possibility for chargebacks and fraud, bitcoin and other cryptocurrencies trade at a premium on ebay. Face to face meetups are another option to acquire bitcoins. Check localbitcoins.com for bitcoin sellers and buyers near your area. Always exercise caution when doing an offline exchange. Meet during the daytime and in places with a lot of people around. If possible, bring a friend.

We’ll leave the choice of where to buy your very first bitcoin up to you, we hope that our presentation relayed enough information to help you make an informed decision. It all depends on your needs and requirements. Some exchanges are better for trading, others have superior banking relations with bankwire deposit and withdrawal options.

Leveraged Bitcoin Trading

In this section we’ll go over several options for trading bitcoin on margin. We’ll also outline the options to brief the virtual currency. Before we go any further, a caution is in order. Bitcoin prices are very volatile. Prices rose from a low of 195.50 on November 1st to a high of 1,090 by November 30th 2013. From here, the btc price crashed to a low of four hundred twenty on December 18th, only to go back up and retest the 1,000 level in January of this year. One bitcoin is presently worth 825.88 on btc-e. The chart below demonstrates this volatility.

Unlike major forex currency pairs which slightly budge one percent per day, bitcoin prices can rise or fall over thirty percent in a single day. If you know how to trade, you don’t truly need any leverage to make money with bitcoin. With that caution out of the way, let’s get down to business and go over some of the options for leveraged btc trading.

We already wrote about one of the more competitive options for shorting bitcoin and leveraged trading, BTC-E. The Bulgarian exchange offers the popular MetaTrader platform with three to one leverage, shorting capability and a low fee of 0.Trio percent per side.

AVA Trade

AVA Trade is a forex broker that offers bitcoin trading through a CFD. Two bitcoin CFDs are available, Bitcoin Mini and Bitcoin Weekly. The Bitcoin Weekly CFD has a twenty to one leverage and expires every Friday at 21:00 GMT. The Bitcoin Mini only has a two to one leverage but doesn’t expire. Both contracts are using data from BTC-E and AVA Trade adds around Ten$ premium on top of the exchange spread. You can find more about the bitcoin trading conditions here. Here’s a snapshot of AvaTrade’s MT4.

A major flaw of both contracts is the inability to trade them during the weekend. Bitcoin trading is totally decentralized and doesn’t rely on a network of banks for executing trades thus there is no set open and closing time. Unlike forex which trades 24/Five, bitcoin trades 24/7 (except on AvaTrade). As can be seen on the chart, large gaps are frequent on AVA Trade’s Bitcoin CFD due to this policy. AvaTrade does not accept US clients at this time.

Etoro.com

Etoro.com is one of the latest forex brokers to suggest bitcoin trading. Unluckily, the product is not very suitable for day trading as you can only come in and exit the market four times per day. It uses the BitStamp’s data feed as a price reference. You can read more about Etoro’s bitcoin suggest here. Here’s a snapshot of their bitcoin CFD in act:

Unluckily despite having a dedicated US part of the site (link to http://www.etoro.com/usa) , eToro doesn’t seem to accept US clients at this time. Here’s a part of the Q&A section that deals with this question: ‘’As part of our ongoing optimization process presently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting fresh clients or funds from existing US customers. While you’re here, you are welcome to proceed experiencing eToro through our practice mode, which will stay available and free to all.’’’

Btc.sx

Btc.sx offers a ten to one leveraged product based on BitStamp’s data feed. Similarly to Ava Trade, Btc.sx adds around Ten$ to the spread at BitStamp. You will need a deposit of at least 0.01033 of a bitcoin in order to trade at Btc.sx. At current bitcoin prices of $638, this amounts to around 6.Three$. Btc.sx is dually incorporated in England and Singapore. The exchange presently accepts only bitcoin deposits, no fiat currency deposits are permitted.

The pic above shows a bitcoin long position. Btc.sx has several confinements that make trading with leverage problematic. The exchange doesn’t support moving the stoploss after entry. When contacted about this, their support team told us that ‘’this feature will be implemented in the next few months’’. Our question is why isn’t it already implemented?

As you can see on the picture, you can only set the stoploss as a distance from the current price (in the pic this is set as fifty points). The default is eighty eight points below entry. This is exactly where my stop was, eighty eight points below nine hundred thirty five at 847. There is a trailing stoploss option but despite my best efforts, I couldn’t make it work. So essentially, once you set your stoploss on Btc.sx, you’re stuck with it.

The high rollover cost also makes leveraged trading at Btc.sx problematic. The currency rollover cost for my position was 0.0094 of a bitcoin, that’s 8.8 US Dollars, far too high for a 1,000 usd position in my opinion. Because the company only permits deposits and withdrawals in bitcoin, it has largely avoided the US Dollar deposit/withdrawal issues encountered by other btc exchanges. Btc.sx does permit US clients.

Bitcoin Options

Besides CFDs, the fresh cryptocurrency has also helped spawn a fresh options market. Presently several companies are in the business of suggesting Bitcoin options. Anyoption.com is one of the more established option houses that offers trading in the virtual currency. You can bet on rising or falling bitcoin prices. Anyoption.com is not an option for US clients, the company doesn’t accept USA traders at the moment. Here are some of the current btc options on suggest.

Predictious

Predictious.com is a betting websites that matches buyers and sellers and doesn’t price the options themselves. Besides betting on bitcoin’s demise or rally, you can also attempt to predict the next winner of the Oscars or bet on which party win control the US Senate after the two thousand fourteen elections. Presently the site takes bitcoin deposits only. Predictious does accept US clients.

What Drives Bitcoin Prices?

Regulation and other deeds by government entities has one of the thickest impacts on the price of bitcoin. The US and Chinese governments are the ones to witness. Somewhat favorable comments by US lawmakers in November and December of last year underpinned the bitcoin rally.

At a Senate committee hearing last month a Justice Department official said that ‘’bitcoins can be a legal means of exchange’’. The fresh cryptocurrency can be exploited by ‘’malicious actors’’ and should be subject to ‘’rules to protect people’’, the agency added.

Enlargened bitcoin purchases from China and the adoption of the currency by Chinese online businesses were another driver that helped thrust the BTC/USD price from 195.Five at the begin of November to a high of $1090 thirty days later. Baidu, the fattest Chinese search engine embarked to suggest payments in bitcoin. The chart below shows the remarkable November rally.

The muffle of the Chinese authorities was seen as a subtle acceptance signal by market participants. The situation didn’t last long however. On December 7th, The People’s Bank of China barred financial institutions from buying or selling virtual currency or Bitcoin related products. The Bank also demanded that businesses stop with the practice of pricing their products in Bitcoins. BTC/USD opened the day at $906.50 on BTC-E. After the news hit the wires, bitcoin prices crashed from to a low of $551 in only nine hours, a fall of 39%.

December 7th is marked with a yellow rectangle on the chart above. After a puny dead cat bounce to $970 in the next few days, bitcoin prices resumed their decline. BTC/USD marked an interim low of $420 US dollars for one bitcoin on December 18th.

Enlargened Adoption and an Expanding Marketplace

At the commence of 2012, one bitcoin was worth exactly $Four.72. One year later a chunk of the fresh currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.

With the two thousand eight financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to seize is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very ordinary, enlargened adoption of the cryptocurrency.

According to BitPay, a Bitcoin Payment Service Provider, as of November two thousand thirteen there are over 14,000 merchants presently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay enhanced tenfold in two thousand fourteen and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only ninety nine transactions the year prior.

Some of the notable adopters as of late include Richard Branson’s Cherry Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, suggested the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also commencing to accept the fresh currency as a means for payment.

All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this fresh phenomenon will have a gam up over their competition going forward.

Usage in outlawed activities

The third thickest fundamental driver of bitcoin prices is the enlargened (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment confinements and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over Ten,000 products for sale, 70% of which were drugs that are illegal in most countries. Around three hundred forty different varieties of drugs were suggested on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on two October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Fear Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking disturbance. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately Trio.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.

The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an chance to buy some cheap bitcoins. Prices were back to one hundred eighteen two days later.

The 2nd yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally commenced right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a instrument for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses commenced accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than eight hundred purchases using Bitcoin on the very first day they began suggesting the fresh payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the very first fourteen days since the fresh payment option was suggested.

But what about the supply side?

Traders with practice in other commodity markets are very likely asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an influence on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a large oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in two thousand fourteen after going up 11.11% last year. The rate of block creation is six per hour with each block worth twenty five bitcoins (around 25k USD). If more mining power goes online and the block generation increases to seven blocks per hour for example, the so called “mining difficulty” will go up until the six blocks per hour average is reaffirmed. On the other forearm if miners generate less coins then the difficulty will go down making it lighter to generate fresh coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the fresh cryptocurrency was also embarking to attract the attention of Wall Street. Wedbush Securities, a little known analyst rigid put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by ten to one hundred times its current value as the fresh technology partly substitutes traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around twelve Million bitcoins presently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a two to three percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least two percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is presently predominated by large players like Western Union and MoneyGram, WU for example can earn upwards of ten percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than five percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around nine cents at current btc prices.

Extra Bitcoin Resources

There are slew of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides plain instructions for setting up your very first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Slew of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the fresh currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from one minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, one mBTC = 0.001 BTC. They still suggest the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates concentrates on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are very likely familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – The Ultimate Guide

At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The fresh cryptocurrency came a long way from trading below $Four just two years ago. Major online and offline retailers are commencing to add the fresh currency as a payment method. But what exactly is bitcoin?

According to a latest Bloomberg poll, only forty two percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

Bitcoin is a peer-to-peer digital currency launched in two thousand nine by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for two years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

‘’It might make sense just to get some in case it catches on’’

Satoshi Nakamoto, January 17th, 2009.

What’s so special about Bitcoin?

Bitcoin is a cryptocurrency and a fresh and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a totally electronic form of money.

Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can loosely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send one bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

What’s so special about Bitcoin? There are many arguments on whether the fresh virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is stringently with the profit opportunities provided by this fresh payment phenomenon. In the next few pages on the fresh digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

Bitcoin Basics

Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle boys or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, totally eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also permits the bypassing of capital and AML limitations.

In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How to get a bitcoin address

Like we mentioned previously, in order to send or receive bitcoins you will need to have a bitcoin address. You can get a bitcoin address either by downloading the bitcoin client or by getting an online wallet. The two most popular btc clients are Bitcoin-qt and Multibit. The main difference inbetween these two clients is in the size of the block chain that needs to be downloaded. If you determine to go with Bitcoin-qt, have at least ten Gigabytes free space on your hard drive for the block chain. As Bitcoin-qt is the ‘’official’’ bitcoin client, if you can spare ten GB, go for this option. Here’s a page that has step by step instructions on installing Bitcoin-qt.

Multibit is a lightweight version of the bitcoin client. You can read more about it here.

Where are my bitcoins stored?

But where are the bitcoins actually stored? After you install one of the two clients above, you can find your bitcoins in a file called wallet.dat. If you use windows this file will be located in the application data section. If your computer gets stolen or lost and you haven’t made a copy of the wallet.dat file you will lose your bitcoins. It is always recommend to backup this file.

The bitcoins can also be stored in online wallets. There are specialized websites that suggest bitcoin wallet services. However due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can lightly store them offline on your computer. Wallets can be useful for storing puny sums of bitcoins so that you can make quick online purchases. Some of the more popular wallet services are Blockchain and CoinKite.

Btc exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually over 90% of the bitcoins deposited on an exchange are kept offline. A puny five to 10% reserve is kept onsite for instantaneous redemption purposes. There are slew of guides online on how to store/secure bitcoins, go over them. It’s always safer to take care of this process yourself then to trust a third party with a substantial amount of bitcoins.

Bitcoin Advantages

Bitcoin has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of confinements.

Another major plus of the fresh cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions fully free of charge, it is recommended to pay the petite fee in order to speed up the sending process.

The fee amount depends on the data size of the transaction. A typical transaction is five hundred bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents.

Because the fee is downright dependent on a transaction’s data size and not on the number of bitcoins being sent, a $Ten transfer will carry the same fee as a $Ten Million transfer. The fee will take a 0.913% chunk of a $Ten transfer but that same fee will only take 0.000000913% of a ten Million transfer.

Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can suggest their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.

Bitcoin and transparency

The picture above shows some of the latest large transactions recorded in the block chain. The very first transaction is for two hundred five BTC, the equivalent of $187,165 at today’s prices. The long lines of letters and numbers you see in the pic are bitcoin addresses. A bitcoin address consists of 27-34 alphanumeric characters, beginning with the number one or Trio. You can have as many addresses as you want, they’re free and effortless to generate.

Notice that there is no name that goes along with the bitcoin address. This is what outside observers mean when they say ‘’ Bitcoin is anonymous’’. Bitcoin is in fact ‘’pseudo anonymous’’. While all bitcoin addresses and transactions are public, the holders of those addresses remain hidden.

The only thing that can be discerned by looking at the block chain is that address 1XXxxxXXXxxxxxxXX sent one hundred Bitcoins to address 3XXxxxXXXxxXXxxXX at a certain time. Who sent the coins, the reason for sending, and the users location is not exposed.

However, keep in mind that as soon as you connect your bitcoin address to your real identity (for example, by purchasing bitcoins online or in a face to face meeting), the pseudo anonymity provided by bitcoin is lost. There are ways to regain the lost anonymity but that is beyond the scope of this introductory article.

Buying Your Very first Bitcoin

But how can you actually get a hold of a bitcoin? The easiest way to acquire bitcoins is to buy them at an online exchange. There are three major bitcoin exchanges, each of them with their own unique properties and a different fee structure.

If you’re European, Bitstamp is your best bet to get some bitcoins at a low cost. The company is based in Slovenia, part of the EU. Deposits by SEPA are free, withdrawals are charged a immovable 0.90€ fee once the funds are converted to Euros. Because Bitstamp only offers trading in BTC/USD (Bitcoin versus the US Dollar) all Euro transfers are instantaneously converted to Dollars. If you want to withdraw by SEPA, you have to convert your funds back to Euros.

The fee structure favours big traders and market makers. The basic fee for fresh accounts starts at 0.5% and goes all the way down to 0.2% if you trade over $150,000 in one month.

Yes forex traders, you heard that right, the LOWEST fee structure is 0.Two percent. The 0.2% charge is per side, so you will get hit with this fee whenever you buy or sell bitcoins.

Fortunately, the spread inbetween the bid and the ask price is very low, most of the time ranging inbetween one and two dollars. At a current bitcoin rate of $819, this amounts to an added cost of 0.1 to 0.25%. You only pay the spread if you want to inject a trade right away with a market order. If you placed a limit order to buy and you’re willing to wait until someone wants to sell, you can purchase your bitcoins at a puny discount at the bid and later sell them at the ask, pocketing the spread in the process.

Bitstamp has largely avoided the deposit and withdrawal problems that plague many bitcoin exchanges. With a lack of regulation on the upcoming virtual currency and its checkered past, many financial institutions remain reluctant to get involved with processing bitcoin related transactions. You can deposit funds in USD, EUR, GBP and CHF. US clients are accepted.

Coinbase is very likely the easiest and safest way to purchase bitcoins in the U.S. Unlike BitStamp, Coinbase is not an exchange. They act as a counter-party to all customer trades, you buy or sell your bitcoins directly to Coinbase. The buy/sell fee is 1% on top of the buy/sell spread. The bid/ask is usually close to BitStamp where the hard gets its liquidity from. For example, the current bid is at $635.48 and the current ask is $638.07. In addition to this, the rock hard has daily thresholds on the amount of bitcoins bought/sold. These thresholds are not applied on the individual level. Basically Coinbase has a set amount of bitcoins that it is willing to buy or sell every day. During times or high volatility, users may not be able to buy/sell bitcoins until Coinbase determines to ‘’refill’’ their stock. Here’s a good explanation on this issue from their Customer Support:

‘’The limit you’re witnessing is Coinbase’s daily limit being reached, not your private limit. Sometimes the Coinbase site itself will run into a daily rolling limit on purchases or sales if there is an exceptional amount of activity in the bitcoin markets. We put up this improvised pause to make sure that we have enough funds to accommodate the transfer orders being created. This should be a uncommon exception rather than the general rule however. There is no specific time of the day where this limit starts – it’s on a twenty four hour rolling basis. It might be best to check in at 6am or 7am Eastern Standard Time tomorrow. Sorry for any inconvenience this has caused you – we know this can be frustrating. This is something we’re working on as we speak.’’

Coinbase claims that over 97% of all customer funds are stored offline in bank vaults to prevent theft or loss. If you live in the States, you can lightly link your bank account to Coinbase to facilitate quick and effortless bank transfers.

BTC-E.com

If you’re a forex trader, BTC-E is very likely the easiest exchange to get into. The company offers its own MetaTrader platform. The instrument comes with a leverage of three to one and the capability to brief bitcoin. Shorting is not an option at Bitstamp. You can still sell any bitcoins you already own at these exchanges but you won’t be able to brief bitcoin outright.

The fees on MetaTrader are slightly higher, 0.3% per side compared to 0.2% if you used btc-e’s web interface. If you’re a forex trader btc-e might strike you as the best option of the three. But alas, nothing is as straightforward in bitcoin world.

No one knows who the real owners behind btc-e are. Evidently the headquarters of the company are in Bulgaria and the support staff is more familiar with Russian then with English, but the rest is a mystery. The company operates a complicated deposit and withdrawal process that relays the money through several banks and payment processors before depositing them to your account. If you plan to deposit on BTC-E, make sure to go after their deposit instructions to the letter. Because the deposits go through a web of banks, tracking down a lost deposit is near to unlikely.

On the plus side, the company does suggest deposit and withdrawal by several popular e-wallets like Webmoney, PerfectMoney, Ukash and Paypal (withdrawal only $500 minimum). According to user reviews, deposits and withdrawal by these methods are a lot quicker and smoother compared to bank wires.

BTC-E does accept US clients. However, kicking off from the middle of December 2013, the company stopped processing US dollar wires or any wires connected to a US bank. Here is an email reply to a customer’s question on this: ‘’We don’t accept international wire transfers from US Citizens or from US Banks. All transfers from US Citizens or US Bank will be refused by bank.’’

Other ways to purchase bitcoins

Aside from the exchanges, you can also buy bitcoins on ebay and similar auction sites. Keep in mind that due to the possibility for chargebacks and fraud, bitcoin and other cryptocurrencies trade at a premium on ebay. Face to face meetups are another option to acquire bitcoins. Check localbitcoins.com for bitcoin sellers and buyers near your area. Always exercise caution when doing an offline exchange. Meet during the daytime and in places with a lot of people around. If possible, bring a friend.

We’ll leave the choice of where to buy your very first bitcoin up to you, we hope that our presentation relayed enough information to help you make an informed decision. It all depends on your needs and requirements. Some exchanges are better for trading, others have superior banking relations with bankwire deposit and withdrawal options.

Leveraged Bitcoin Trading

In this section we’ll go over several options for trading bitcoin on margin. We’ll also outline the options to brief the virtual currency. Before we go any further, a caution is in order. Bitcoin prices are very volatile. Prices rose from a low of 195.50 on November 1st to a high of 1,090 by November 30th 2013. From here, the btc price crashed to a low of four hundred twenty on December 18th, only to go back up and retest the 1,000 level in January of this year. One bitcoin is presently worth 825.88 on btc-e. The chart below demonstrates this volatility.

Unlike major forex currency pairs which slightly budge one percent per day, bitcoin prices can rise or fall over thirty percent in a single day. If you know how to trade, you don’t indeed need any leverage to make money with bitcoin. With that caution out of the way, let’s get down to business and go over some of the options for leveraged btc trading.

We already wrote about one of the more competitive options for shorting bitcoin and leveraged trading, BTC-E. The Bulgarian exchange offers the popular MetaTrader platform with three to one leverage, shorting capability and a low fee of 0.Three percent per side.

AVA Trade

AVA Trade is a forex broker that offers bitcoin trading through a CFD. Two bitcoin CFDs are available, Bitcoin Mini and Bitcoin Weekly. The Bitcoin Weekly CFD has a twenty to one leverage and expires every Friday at 21:00 GMT. The Bitcoin Mini only has a two to one leverage but doesn’t expire. Both contracts are using data from BTC-E and AVA Trade adds around Ten$ premium on top of the exchange spread. You can find more about the bitcoin trading conditions here. Here’s a snapshot of AvaTrade’s MT4.

A major flaw of both contracts is the inability to trade them during the weekend. Bitcoin trading is fully decentralized and doesn’t rely on a network of banks for executing trades thus there is no set open and closing time. Unlike forex which trades 24/Five, bitcoin trades 24/7 (except on AvaTrade). As can be seen on the chart, large gaps are frequent on AVA Trade’s Bitcoin CFD due to this policy. AvaTrade does not accept US clients at this time.

Etoro.com

Etoro.com is one of the latest forex brokers to suggest bitcoin trading. Unluckily, the product is not very suitable for day trading as you can only come in and exit the market four times per day. It uses the BitStamp’s data feed as a price reference. You can read more about Etoro’s bitcoin suggest here. Here’s a snapshot of their bitcoin CFD in act:

Unluckily despite having a dedicated US part of the site (link to http://www.etoro.com/usa) , eToro doesn’t seem to accept US clients at this time. Here’s a part of the Q&A section that deals with this question: ‘’As part of our ongoing optimization process presently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting fresh clients or funds from existing US customers. While you’re here, you are welcome to proceed experiencing eToro through our practice mode, which will stay available and free to all.’’’

Btc.sx

Btc.sx offers a ten to one leveraged product based on BitStamp’s data feed. Similarly to Ava Trade, Btc.sx adds around Ten$ to the spread at BitStamp. You will need a deposit of at least 0.01033 of a bitcoin in order to trade at Btc.sx. At current bitcoin prices of $638, this amounts to around 6.Trio$. Btc.sx is dually incorporated in England and Singapore. The exchange presently accepts only bitcoin deposits, no fiat currency deposits are permitted.

The pic above shows a bitcoin long position. Btc.sx has several limitations that make trading with leverage problematic. The exchange doesn’t support moving the stoploss after entry. When contacted about this, their support team told us that ‘’this feature will be implemented in the next few months’’. Our question is why isn’t it already implemented?

As you can see on the picture, you can only set the stoploss as a distance from the current price (in the pic this is set as fifty points). The default is eighty eight points below entry. This is exactly where my stop was, eighty eight points below nine hundred thirty five at 847. There is a trailing stoploss option but despite my best efforts, I couldn’t make it work. So essentially, once you set your stoploss on Btc.sx, you’re stuck with it.

The high rollover cost also makes leveraged trading at Btc.sx problematic. The currency rollover cost for my position was 0.0094 of a bitcoin, that’s 8.8 US Dollars, far too high for a 1,000 usd position in my opinion. Because the company only permits deposits and withdrawals in bitcoin, it has largely avoided the US Dollar deposit/withdrawal issues encountered by other btc exchanges. Btc.sx does permit US clients.

Bitcoin Options

Besides CFDs, the fresh cryptocurrency has also helped spawn a fresh options market. Presently several companies are in the business of suggesting Bitcoin options. Anyoption.com is one of the more established option houses that offers trading in the virtual currency. You can bet on rising or falling bitcoin prices. Anyoption.com is not an option for US clients, the company doesn’t accept USA traders at the moment. Here are some of the current btc options on suggest.

Predictious

Predictious.com is a betting websites that matches buyers and sellers and doesn’t price the options themselves. Besides betting on bitcoin’s demise or rally, you can also attempt to predict the next winner of the Oscars or bet on which party win control the US Senate after the two thousand fourteen elections. Presently the site takes bitcoin deposits only. Predictious does accept US clients.

What Drives Bitcoin Prices?

Regulation and other deeds by government entities has one of the thickest impacts on the price of bitcoin. The US and Chinese governments are the ones to observe. Somewhat favorable comments by US lawmakers in November and December of last year underpinned the bitcoin rally.

At a Senate committee hearing last month a Justice Department official said that ‘’bitcoins can be a legal means of exchange’’. The fresh cryptocurrency can be exploited by ‘’malicious actors’’ and should be subject to ‘’rules to protect people’’, the agency added.

Enhanced bitcoin purchases from China and the adoption of the currency by Chinese online businesses were another driver that helped shove the BTC/USD price from 195.Five at the begin of November to a high of $1090 thirty days later. Baidu, the fattest Chinese search engine began to suggest payments in bitcoin. The chart below shows the remarkable November rally.

The muffle of the Chinese authorities was seen as a subtle acceptance signal by market participants. The situation didn’t last long however. On December 7th, The People’s Bank of China barred financial institutions from buying or selling virtual currency or Bitcoin related products. The Bank also demanded that businesses stop with the practice of pricing their products in Bitcoins. BTC/USD opened the day at $906.50 on BTC-E. After the news hit the wires, bitcoin prices crashed from to a low of $551 in only nine hours, a fall of 39%.

December 7th is marked with a yellow rectangle on the chart above. After a petite dead cat bounce to $970 in the next few days, bitcoin prices resumed their decline. BTC/USD marked an interim low of $420 US dollars for one bitcoin on December 18th.

Enlargened Adoption and an Expanding Marketplace

At the embark of 2012, one bitcoin was worth exactly $Four.72. One year later a chunk of the fresh currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.

With the two thousand eight financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to grip is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very elementary, enhanced adoption of the cryptocurrency.

According to BitPay, a Bitcoin Payment Service Provider, as of November two thousand thirteen there are over 14,000 merchants presently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay enlargened tenfold in two thousand fourteen and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only ninety nine transactions the year prior.

Some of the notable adopters as of late include Richard Branson’s Cherry Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, suggested the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also kicking off to accept the fresh currency as a means for payment.

All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this fresh phenomenon will have a gam up over their competition going forward.

Usage in outlawed activities

The third thickest fundamental driver of bitcoin prices is the enlargened (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment limitations and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over Ten,000 products for sale, 70% of which were drugs that are illegal in most countries. Around three hundred forty different varieties of drugs were suggested on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on two October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Fear Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking disturbance. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately Three.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.

The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an chance to buy some cheap bitcoins. Prices were back to one hundred eighteen two days later.

The 2nd yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally began right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a implement for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses embarked accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than eight hundred purchases using Bitcoin on the very first day they embarked suggesting the fresh payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the very first fourteen days since the fresh payment option was suggested.

But what about the supply side?

Traders with practice in other commodity markets are very likely asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an influence on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a large oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in two thousand fourteen after going up 11.11% last year. The rate of block creation is six per hour with each block worth twenty five bitcoins (around 25k USD). If more mining power goes online and the block generation increases to seven blocks per hour for example, the so called “mining difficulty” will go up until the six blocks per hour average is reaffirmed. On the other forearm if miners generate less coins then the difficulty will go down making it lighter to generate fresh coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the fresh cryptocurrency was also kicking off to attract the attention of Wall Street. Wedbush Securities, a little known analyst rigid put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by ten to one hundred times its current value as the fresh technology partly substitutes traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around twelve Million bitcoins presently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a two to three percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least two percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is presently predominated by large players like Western Union and MoneyGram, WU for example can earn upwards of ten percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than five percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around nine cents at current btc prices.

Extra Bitcoin Resources

There are slew of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides ordinary instructions for setting up your very first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Slew of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the fresh currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from one minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, one mBTC = 0.001 BTC. They still suggest the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates concentrates on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are most likely familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – The Ultimate Guide

At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The fresh cryptocurrency came a long way from trading below $Four just two years ago. Major online and offline retailers are embarking to add the fresh currency as a payment method. But what exactly is bitcoin?

According to a latest Bloomberg poll, only forty two percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

Bitcoin is a peer-to-peer digital currency launched in two thousand nine by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for two years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

‘’It might make sense just to get some in case it catches on’’

Satoshi Nakamoto, January 17th, 2009.

What’s so special about Bitcoin?

Bitcoin is a cryptocurrency and a fresh and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a downright electronic form of money.

Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can loosely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send one bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

What’s so special about Bitcoin? There are many arguments on whether the fresh virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is stringently with the profit opportunities provided by this fresh payment phenomenon. In the next few pages on the fresh digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

Bitcoin Basics

Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle dudes or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, fully eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also permits the bypassing of capital and AML limitations.

In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How to get a bitcoin address

Like we mentioned previously, in order to send or receive bitcoins you will need to have a bitcoin address. You can get a bitcoin address either by downloading the bitcoin client or by getting an online wallet. The two most popular btc clients are Bitcoin-qt and Multibit. The main difference inbetween these two clients is in the size of the block chain that needs to be downloaded. If you determine to go with Bitcoin-qt, have at least ten Gigabytes free space on your hard drive for the block chain. As Bitcoin-qt is the ‘’official’’ bitcoin client, if you can spare ten GB, go for this option. Here’s a page that has step by step instructions on installing Bitcoin-qt.

Multibit is a lightweight version of the bitcoin client. You can read more about it here.

Where are my bitcoins stored?

But where are the bitcoins actually stored? After you install one of the two clients above, you can find your bitcoins in a file called wallet.dat. If you use windows this file will be located in the application data section. If your computer gets stolen or lost and you haven’t made a copy of the wallet.dat file you will lose your bitcoins. It is always recommend to backup this file.

The bitcoins can also be stored in online wallets. There are specialized websites that suggest bitcoin wallet services. However due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can lightly store them offline on your computer. Wallets can be useful for storing petite sums of bitcoins so that you can make quick online purchases. Some of the more popular wallet services are Blockchain and CoinKite.

Btc exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually over 90% of the bitcoins deposited on an exchange are kept offline. A puny five to 10% reserve is kept onsite for instantaneous redemption purposes. There are slew of guides online on how to store/secure bitcoins, go over them. It’s always safer to take care of this process yourself then to trust a third party with a substantial amount of bitcoins.

Bitcoin Advantages

Bitcoin has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of confinements.

Another major plus of the fresh cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions totally free of charge, it is recommended to pay the petite fee in order to speed up the sending process.

The fee amount depends on the data size of the transaction. A typical transaction is five hundred bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents.

Because the fee is fully dependent on a transaction’s data size and not on the number of bitcoins being sent, a $Ten transfer will carry the same fee as a $Ten Million transfer. The fee will take a 0.913% chunk of a $Ten transfer but that same fee will only take 0.000000913% of a ten Million transfer.

Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can suggest their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.

Bitcoin and transparency

The picture above shows some of the latest large transactions recorded in the block chain. The very first transaction is for two hundred five BTC, the equivalent of $187,165 at today’s prices. The long lines of letters and numbers you see in the pic are bitcoin addresses. A bitcoin address consists of 27-34 alphanumeric characters, beginning with the number one or Three. You can have as many addresses as you want, they’re free and effortless to generate.

Notice that there is no name that goes along with the bitcoin address. This is what outside observers mean when they say ‘’ Bitcoin is anonymous’’. Bitcoin is in fact ‘’pseudo anonymous’’. While all bitcoin addresses and transactions are public, the holders of those addresses remain hidden.

The only thing that can be discerned by looking at the block chain is that address 1XXxxxXXXxxxxxxXX sent one hundred Bitcoins to address 3XXxxxXXXxxXXxxXX at a certain time. Who sent the coins, the reason for sending, and the users location is not exposed.

However, keep in mind that as soon as you connect your bitcoin address to your real identity (for example, by purchasing bitcoins online or in a face to face meeting), the pseudo anonymity provided by bitcoin is lost. There are ways to regain the lost anonymity but that is beyond the scope of this introductory article.

Buying Your Very first Bitcoin

But how can you actually get a hold of a bitcoin? The easiest way to acquire bitcoins is to buy them at an online exchange. There are three major bitcoin exchanges, each of them with their own unique properties and a different fee structure.

If you’re European, Bitstamp is your best bet to get some bitcoins at a low cost. The company is based in Slovenia, part of the EU. Deposits by SEPA are free, withdrawals are charged a motionless 0.90€ fee once the funds are converted to Euros. Because Bitstamp only offers trading in BTC/USD (Bitcoin versus the US Dollar) all Euro transfers are instantaneously converted to Dollars. If you want to withdraw by SEPA, you have to convert your funds back to Euros.

The fee structure favours big traders and market makers. The basic fee for fresh accounts starts at 0.5% and goes all the way down to 0.2% if you trade over $150,000 in one month.

Yes forex traders, you heard that right, the LOWEST fee structure is 0.Two percent. The 0.2% charge is per side, so you will get hit with this fee whenever you buy or sell bitcoins.

Fortunately, the spread inbetween the bid and the ask price is very low, most of the time ranging inbetween one and two dollars. At a current bitcoin rate of $819, this amounts to an added cost of 0.1 to 0.25%. You only pay the spread if you want to come in a trade right away with a market order. If you placed a limit order to buy and you’re willing to wait until someone wants to sell, you can purchase your bitcoins at a petite discount at the bid and later sell them at the ask, pocketing the spread in the process.

Bitstamp has largely avoided the deposit and withdrawal problems that plague many bitcoin exchanges. With a lack of regulation on the upcoming virtual currency and its checkered past, many financial institutions remain reluctant to get involved with processing bitcoin related transactions. You can deposit funds in USD, EUR, GBP and CHF. US clients are accepted.

Coinbase is most likely the easiest and safest way to purchase bitcoins in the U.S. Unlike BitStamp, Coinbase is not an exchange. They act as a counter-party to all customer trades, you buy or sell your bitcoins directly to Coinbase. The buy/sell fee is 1% on top of the buy/sell spread. The bid/ask is usually close to BitStamp where the rock hard gets its liquidity from. For example, the current bid is at $635.48 and the current ask is $638.07. In addition to this, the rock-hard has daily boundaries on the amount of bitcoins bought/sold. These thresholds are not applied on the individual level. Basically Coinbase has a set amount of bitcoins that it is willing to buy or sell every day. During times or high volatility, users may not be able to buy/sell bitcoins until Coinbase determines to ‘’refill’’ their stock. Here’s a good explanation on this issue from their Customer Support:

‘’The limit you’re eyeing is Coinbase’s daily limit being reached, not your private limit. Sometimes the Coinbase site itself will run into a daily rolling limit on purchases or sales if there is an exceptional amount of activity in the bitcoin markets. We put up this improvised pause to make sure that we have enough funds to accommodate the transfer orders being created. This should be a uncommon exception rather than the general rule however. There is no specific time of the day where this limit starts – it’s on a twenty four hour rolling basis. It might be best to check in at 6am or 7am Eastern Standard Time tomorrow. Sorry for any inconvenience this has caused you – we know this can be frustrating. This is something we’re working on as we speak.’’

Coinbase claims that over 97% of all customer funds are stored offline in bank vaults to prevent theft or loss. If you live in the States, you can lightly link your bank account to Coinbase to facilitate quick and effortless bank transfers.

BTC-E.com

If you’re a forex trader, BTC-E is very likely the easiest exchange to get into. The company offers its own MetaTrader platform. The instrument comes with a leverage of three to one and the capability to brief bitcoin. Shorting is not an option at Bitstamp. You can still sell any bitcoins you already own at these exchanges but you won’t be able to brief bitcoin outright.

The fees on MetaTrader are slightly higher, 0.3% per side compared to 0.2% if you used btc-e’s web interface. If you’re a forex trader btc-e might strike you as the best option of the three. But alas, nothing is as straightforward in bitcoin world.

No one knows who the real owners behind btc-e are. Evidently the headquarters of the company are in Bulgaria and the support staff is more familiar with Russian then with English, but the rest is a mystery. The company operates a complicated deposit and withdrawal process that relays the money through several banks and payment processors before depositing them to your account. If you plan to deposit on BTC-E, make sure to go after their deposit instructions to the letter. Because the deposits go through a web of banks, tracking down a lost deposit is near to unlikely.

On the plus side, the company does suggest deposit and withdrawal by several popular e-wallets like Webmoney, PerfectMoney, Ukash and Paypal (withdrawal only $500 minimum). According to user reviews, deposits and withdrawal by these methods are a lot quicker and smoother compared to bank wires.

BTC-E does accept US clients. However, commencing from the middle of December 2013, the company stopped processing US dollar wires or any wires connected to a US bank. Here is an email reply to a customer’s question on this: ‘’We don’t accept international wire transfers from US Citizens or from US Banks. All transfers from US Citizens or US Bank will be refused by bank.’’

Other ways to purchase bitcoins

Aside from the exchanges, you can also buy bitcoins on ebay and similar auction sites. Keep in mind that due to the possibility for chargebacks and fraud, bitcoin and other cryptocurrencies trade at a premium on ebay. Face to face meetups are another option to acquire bitcoins. Check localbitcoins.com for bitcoin sellers and buyers near your area. Always exercise caution when doing an offline exchange. Meet during the daytime and in places with a lot of people around. If possible, bring a friend.

We’ll leave the choice of where to buy your very first bitcoin up to you, we hope that our presentation relayed enough information to help you make an informed decision. It all depends on your needs and requirements. Some exchanges are better for trading, others have superior banking relations with bankwire deposit and withdrawal options.

Leveraged Bitcoin Trading

In this section we’ll go over several options for trading bitcoin on margin. We’ll also outline the options to brief the virtual currency. Before we go any further, a caution is in order. Bitcoin prices are very volatile. Prices rose from a low of 195.50 on November 1st to a high of 1,090 by November 30th 2013. From here, the btc price crashed to a low of four hundred twenty on December 18th, only to go back up and retest the 1,000 level in January of this year. One bitcoin is presently worth 825.88 on btc-e. The chart below demonstrates this volatility.

Unlike major forex currency pairs which scarcely stir one percent per day, bitcoin prices can rise or fall over thirty percent in a single day. If you know how to trade, you don’t indeed need any leverage to make money with bitcoin. With that caution out of the way, let’s get down to business and go over some of the options for leveraged btc trading.

We already wrote about one of the more competitive options for shorting bitcoin and leveraged trading, BTC-E. The Bulgarian exchange offers the popular MetaTrader platform with three to one leverage, shorting capability and a low fee of 0.Trio percent per side.

AVA Trade

AVA Trade is a forex broker that offers bitcoin trading through a CFD. Two bitcoin CFDs are available, Bitcoin Mini and Bitcoin Weekly. The Bitcoin Weekly CFD has a twenty to one leverage and expires every Friday at 21:00 GMT. The Bitcoin Mini only has a two to one leverage but doesn’t expire. Both contracts are using data from BTC-E and AVA Trade adds around Ten$ premium on top of the exchange spread. You can find more about the bitcoin trading conditions here. Here’s a snapshot of AvaTrade’s MT4.

A major flaw of both contracts is the inability to trade them during the weekend. Bitcoin trading is totally decentralized and doesn’t rely on a network of banks for executing trades thus there is no set open and closing time. Unlike forex which trades 24/Five, bitcoin trades 24/7 (except on AvaTrade). As can be seen on the chart, large gaps are frequent on AVA Trade’s Bitcoin CFD due to this policy. AvaTrade does not accept US clients at this time.

Etoro.com

Etoro.com is one of the latest forex brokers to suggest bitcoin trading. Unluckily, the product is not very suitable for day trading as you can only inject and exit the market four times per day. It uses the BitStamp’s data feed as a price reference. You can read more about Etoro’s bitcoin suggest here. Here’s a snapshot of their bitcoin CFD in activity:

Unluckily despite having a dedicated US part of the site (link to http://www.etoro.com/usa) , eToro doesn’t seem to accept US clients at this time. Here’s a part of the Q&A section that deals with this question: ‘’As part of our ongoing optimization process presently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting fresh clients or funds from existing US customers. While you’re here, you are welcome to proceed experiencing eToro through our practice mode, which will stay available and free to all.’’’

Btc.sx

Btc.sx offers a ten to one leveraged product based on BitStamp’s data feed. Similarly to Ava Trade, Btc.sx adds around Ten$ to the spread at BitStamp. You will need a deposit of at least 0.01033 of a bitcoin in order to trade at Btc.sx. At current bitcoin prices of $638, this amounts to around 6.Three$. Btc.sx is dually incorporated in England and Singapore. The exchange presently accepts only bitcoin deposits, no fiat currency deposits are permitted.

The pic above shows a bitcoin long position. Btc.sx has several confinements that make trading with leverage problematic. The exchange doesn’t support moving the stoploss after entry. When contacted about this, their support team told us that ‘’this feature will be implemented in the next few months’’. Our question is why isn’t it already implemented?

As you can see on the picture, you can only set the stoploss as a distance from the current price (in the pic this is set as fifty points). The default is eighty eight points below entry. This is exactly where my stop was, eighty eight points below nine hundred thirty five at 847. There is a trailing stoploss option but despite my best efforts, I couldn’t make it work. So essentially, once you set your stoploss on Btc.sx, you’re stuck with it.

The high rollover cost also makes leveraged trading at Btc.sx problematic. The currency rollover cost for my position was 0.0094 of a bitcoin, that’s 8.8 US Dollars, far too high for a 1,000 usd position in my opinion. Because the company only permits deposits and withdrawals in bitcoin, it has largely avoided the US Dollar deposit/withdrawal issues encountered by other btc exchanges. Btc.sx does permit US clients.

Bitcoin Options

Besides CFDs, the fresh cryptocurrency has also helped spawn a fresh options market. Presently several companies are in the business of suggesting Bitcoin options. Anyoption.com is one of the more established option houses that offers trading in the virtual currency. You can bet on rising or falling bitcoin prices. Anyoption.com is not an option for US clients, the company doesn’t accept USA traders at the moment. Here are some of the current btc options on suggest.

Predictious

Predictious.com is a betting websites that matches buyers and sellers and doesn’t price the options themselves. Besides betting on bitcoin’s demise or rally, you can also attempt to predict the next winner of the Oscars or bet on which party win control the US Senate after the two thousand fourteen elections. Presently the site takes bitcoin deposits only. Predictious does accept US clients.

What Drives Bitcoin Prices?

Regulation and other deeds by government entities has one of the fattest impacts on the price of bitcoin. The US and Chinese governments are the ones to see. Somewhat favorable comments by US lawmakers in November and December of last year underpinned the bitcoin rally.

At a Senate committee hearing last month a Justice Department official said that ‘’bitcoins can be a legal means of exchange’’. The fresh cryptocurrency can be exploited by ‘’malicious actors’’ and should be subject to ‘’rules to protect people’’, the agency added.

Enhanced bitcoin purchases from China and the adoption of the currency by Chinese online businesses were another driver that helped shove the BTC/USD price from 195.Five at the commence of November to a high of $1090 thirty days later. Baidu, the largest Chinese search engine embarked to suggest payments in bitcoin. The chart below shows the remarkable November rally.

The muffle of the Chinese authorities was seen as a subtle acceptance signal by market participants. The situation didn’t last long however. On December 7th, The People’s Bank of China barred financial institutions from buying or selling virtual currency or Bitcoin related products. The Bank also demanded that businesses stop with the practice of pricing their products in Bitcoins. BTC/USD opened the day at $906.50 on BTC-E. After the news hit the wires, bitcoin prices crashed from to a low of $551 in only nine hours, a fall of 39%.

December 7th is marked with a yellow rectangle on the chart above. After a petite dead cat bounce to $970 in the next few days, bitcoin prices resumed their decline. BTC/USD marked an interim low of $420 US dollars for one bitcoin on December 18th.

Enhanced Adoption and an Expanding Marketplace

At the embark of 2012, one bitcoin was worth exactly $Four.72. One year later a chunk of the fresh currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.

With the two thousand eight financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to grip is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very plain, enlargened adoption of the cryptocurrency.

According to BitPay, a Bitcoin Payment Service Provider, as of November two thousand thirteen there are over 14,000 merchants presently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay enhanced tenfold in two thousand fourteen and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only ninety nine transactions the year prior.

Some of the notable adopters as of late include Richard Branson’s Cherry Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, suggested the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also embarking to accept the fresh currency as a means for payment.

All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this fresh phenomenon will have a gam up over their competition going forward.

Usage in outlawed activities

The third fattest fundamental driver of bitcoin prices is the enlargened (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment confinements and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over Ten,000 products for sale, 70% of which were drugs that are illegal in most countries. Around three hundred forty different varieties of drugs were suggested on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on two October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Fear Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking disturbance. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately Trio.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.

The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an chance to buy some cheap bitcoins. Prices were back to one hundred eighteen two days later.

The 2nd yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally began right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a device for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses embarked accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than eight hundred purchases using Bitcoin on the very first day they commenced suggesting the fresh payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the very first fourteen days since the fresh payment option was suggested.

But what about the supply side?

Traders with practice in other commodity markets are very likely asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an influence on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a giant oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in two thousand fourteen after going up 11.11% last year. The rate of block creation is six per hour with each block worth twenty five bitcoins (around 25k USD). If more mining power goes online and the block generation increases to seven blocks per hour for example, the so called “mining difficulty” will go up until the six blocks per hour average is reaffirmed. On the other mitt if miners generate less coins then the difficulty will go down making it lighter to generate fresh coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the fresh cryptocurrency was also beginning to attract the attention of Wall Street. Wedbush Securities, a little known analyst rigid put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by ten to one hundred times its current value as the fresh technology partly substitutes traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around twelve Million bitcoins presently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a two to three percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least two percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is presently predominated by large players like Western Union and MoneyGram, WU for example can earn upwards of ten percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than five percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around nine cents at current btc prices.

Extra Bitcoin Resources

There are slew of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides plain instructions for setting up your very first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Slew of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the fresh currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from one minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, one mBTC = 0.001 BTC. They still suggest the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates concentrates on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are most likely familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – The Ultimate Guide

At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The fresh cryptocurrency came a long way from trading below $Four just two years ago. Major online and offline retailers are beginning to add the fresh currency as a payment method. But what exactly is bitcoin?

According to a latest Bloomberg poll, only forty two percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

Bitcoin is a peer-to-peer digital currency launched in two thousand nine by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for two years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

‘’It might make sense just to get some in case it catches on’’

Satoshi Nakamoto, January 17th, 2009.

What’s so special about Bitcoin?

Bitcoin is a cryptocurrency and a fresh and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a totally electronic form of money.

Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can loosely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send one bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

What’s so special about Bitcoin? There are many arguments on whether the fresh virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is rigorously with the profit opportunities provided by this fresh payment phenomenon. In the next few pages on the fresh digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

Bitcoin Basics

Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle studs or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, fully eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also permits the bypassing of capital and AML confinements.

In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How to get a bitcoin address

Like we mentioned previously, in order to send or receive bitcoins you will need to have a bitcoin address. You can get a bitcoin address either by downloading the bitcoin client or by getting an online wallet. The two most popular btc clients are Bitcoin-qt and Multibit. The main difference inbetween these two clients is in the size of the block chain that needs to be downloaded. If you determine to go with Bitcoin-qt, have at least ten Gigabytes free space on your hard drive for the block chain. As Bitcoin-qt is the ‘’official’’ bitcoin client, if you can spare ten GB, go for this option. Here’s a page that has step by step instructions on installing Bitcoin-qt.

Multibit is a lightweight version of the bitcoin client. You can read more about it here.

Where are my bitcoins stored?

But where are the bitcoins actually stored? After you install one of the two clients above, you can find your bitcoins in a file called wallet.dat. If you use windows this file will be located in the application data section. If your computer gets stolen or lost and you haven’t made a copy of the wallet.dat file you will lose your bitcoins. It is always recommend to backup this file.

The bitcoins can also be stored in online wallets. There are specialized websites that suggest bitcoin wallet services. However due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can lightly store them offline on your computer. Wallets can be useful for storing petite sums of bitcoins so that you can make quick online purchases. Some of the more popular wallet services are Blockchain and CoinKite.

Btc exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually over 90% of the bitcoins deposited on an exchange are kept offline. A puny five to 10% reserve is kept onsite for instantaneous redemption purposes. There are slew of guides online on how to store/secure bitcoins, go over them. It’s always safer to take care of this process yourself then to trust a third party with a substantial amount of bitcoins.

Bitcoin Advantages

Bitcoin has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of limitations.

Another major plus of the fresh cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions downright free of charge, it is recommended to pay the puny fee in order to speed up the sending process.

The fee amount depends on the data size of the transaction. A typical transaction is five hundred bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents.

Because the fee is downright dependent on a transaction’s data size and not on the number of bitcoins being sent, a $Ten transfer will carry the same fee as a $Ten Million transfer. The fee will take a 0.913% chunk of a $Ten transfer but that same fee will only take 0.000000913% of a ten Million transfer.

Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can suggest their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.

Bitcoin and transparency

The picture above shows some of the latest large transactions recorded in the block chain. The very first transaction is for two hundred five BTC, the equivalent of $187,165 at today’s prices. The long lines of letters and numbers you see in the pic are bitcoin addresses. A bitcoin address consists of 27-34 alphanumeric characters, beginning with the number one or Trio. You can have as many addresses as you want, they’re free and effortless to generate.

Notice that there is no name that goes along with the bitcoin address. This is what outside observers mean when they say ‘’ Bitcoin is anonymous’’. Bitcoin is in fact ‘’pseudo anonymous’’. While all bitcoin addresses and transactions are public, the holders of those addresses remain hidden.

The only thing that can be discerned by looking at the block chain is that address 1XXxxxXXXxxxxxxXX sent one hundred Bitcoins to address 3XXxxxXXXxxXXxxXX at a certain time. Who sent the coins, the reason for sending, and the users location is not exposed.

However, keep in mind that as soon as you connect your bitcoin address to your real identity (for example, by purchasing bitcoins online or in a face to face meeting), the pseudo anonymity provided by bitcoin is lost. There are ways to regain the lost anonymity but that is beyond the scope of this introductory article.

Buying Your Very first Bitcoin

But how can you actually get a hold of a bitcoin? The easiest way to acquire bitcoins is to buy them at an online exchange. There are three major bitcoin exchanges, each of them with their own unique properties and a different fee structure.

If you’re European, Bitstamp is your best bet to get some bitcoins at a low cost. The company is based in Slovenia, part of the EU. Deposits by SEPA are free, withdrawals are charged a stationary 0.90€ fee once the funds are converted to Euros. Because Bitstamp only offers trading in BTC/USD (Bitcoin versus the US Dollar) all Euro transfers are instantaneously converted to Dollars. If you want to withdraw by SEPA, you have to convert your funds back to Euros.

The fee structure favours big traders and market makers. The basic fee for fresh accounts starts at 0.5% and goes all the way down to 0.2% if you trade over $150,000 in one month.

Yes forex traders, you heard that right, the LOWEST fee structure is 0.Two percent. The 0.2% charge is per side, so you will get hit with this fee whenever you buy or sell bitcoins.

Fortunately, the spread inbetween the bid and the ask price is very low, most of the time ranging inbetween one and two dollars. At a current bitcoin rate of $819, this amounts to an added cost of 0.1 to 0.25%. You only pay the spread if you want to inject a trade right away with a market order. If you placed a limit order to buy and you’re willing to wait until someone wants to sell, you can purchase your bitcoins at a petite discount at the bid and later sell them at the ask, pocketing the spread in the process.

Bitstamp has largely avoided the deposit and withdrawal problems that plague many bitcoin exchanges. With a lack of regulation on the upcoming virtual currency and its checkered past, many financial institutions remain reluctant to get involved with processing bitcoin related transactions. You can deposit funds in USD, EUR, GBP and CHF. US clients are accepted.

Coinbase is very likely the easiest and safest way to purchase bitcoins in the U.S. Unlike BitStamp, Coinbase is not an exchange. They act as a counter-party to all customer trades, you buy or sell your bitcoins directly to Coinbase. The buy/sell fee is 1% on top of the buy/sell spread. The bid/ask is usually close to BitStamp where the rock hard gets its liquidity from. For example, the current bid is at $635.48 and the current ask is $638.07. In addition to this, the hard has daily thresholds on the amount of bitcoins bought/sold. These boundaries are not applied on the individual level. Basically Coinbase has a set amount of bitcoins that it is willing to buy or sell every day. During times or high volatility, users may not be able to buy/sell bitcoins until Coinbase determines to ‘’refill’’ their stock. Here’s a good explanation on this issue from their Customer Support:

‘’The limit you’re witnessing is Coinbase’s daily limit being reached, not your individual limit. Sometimes the Coinbase site itself will run into a daily rolling limit on purchases or sales if there is an exceptional amount of activity in the bitcoin markets. We put up this makeshift pause to make sure that we have enough funds to accommodate the transfer orders being created. This should be a infrequent exception rather than the general rule however. There is no specific time of the day where this limit starts – it’s on a twenty four hour rolling basis. It might be best to check in at 6am or 7am Eastern Standard Time tomorrow. Sorry for any inconvenience this has caused you – we know this can be frustrating. This is something we’re working on as we speak.’’

Coinbase claims that over 97% of all customer funds are stored offline in bank vaults to prevent theft or loss. If you live in the States, you can lightly link your bank account to Coinbase to facilitate quick and effortless bank transfers.

BTC-E.com

If you’re a forex trader, BTC-E is very likely the easiest exchange to get into. The company offers its own MetaTrader platform. The instrument comes with a leverage of three to one and the capability to brief bitcoin. Shorting is not an option at Bitstamp. You can still sell any bitcoins you already own at these exchanges but you won’t be able to brief bitcoin outright.

The fees on MetaTrader are slightly higher, 0.3% per side compared to 0.2% if you used btc-e’s web interface. If you’re a forex trader btc-e might strike you as the best option of the three. But alas, nothing is as straightforward in bitcoin world.

No one knows who the real owners behind btc-e are. Evidently the headquarters of the company are in Bulgaria and the support staff is more familiar with Russian then with English, but the rest is a mystery. The company operates a complicated deposit and withdrawal process that relays the money through several banks and payment processors before depositing them to your account. If you plan to deposit on BTC-E, make sure to go after their deposit instructions to the letter. Because the deposits go through a web of banks, tracking down a lost deposit is near to unlikely.

On the plus side, the company does suggest deposit and withdrawal by several popular e-wallets like Webmoney, PerfectMoney, Ukash and Paypal (withdrawal only $500 minimum). According to user reviews, deposits and withdrawal by these methods are a lot quicker and smoother compared to bank wires.

BTC-E does accept US clients. However, beginning from the middle of December 2013, the company stopped processing US dollar wires or any wires connected to a US bank. Here is an email reply to a customer’s question on this: ‘’We don’t accept international wire transfers from US Citizens or from US Banks. All transfers from US Citizens or US Bank will be refused by bank.’’

Other ways to purchase bitcoins

Aside from the exchanges, you can also buy bitcoins on ebay and similar auction sites. Keep in mind that due to the possibility for chargebacks and fraud, bitcoin and other cryptocurrencies trade at a premium on ebay. Face to face meetups are another option to acquire bitcoins. Check localbitcoins.com for bitcoin sellers and buyers near your area. Always exercise caution when doing an offline exchange. Meet during the daytime and in places with a lot of people around. If possible, bring a friend.

We’ll leave the choice of where to buy your very first bitcoin up to you, we hope that our presentation relayed enough information to help you make an informed decision. It all depends on your needs and requirements. Some exchanges are better for trading, others have superior banking relations with bankwire deposit and withdrawal options.

Leveraged Bitcoin Trading

In this section we’ll go over several options for trading bitcoin on margin. We’ll also outline the options to brief the virtual currency. Before we go any further, a caution is in order. Bitcoin prices are very volatile. Prices rose from a low of 195.50 on November 1st to a high of 1,090 by November 30th 2013. From here, the btc price crashed to a low of four hundred twenty on December 18th, only to go back up and retest the 1,000 level in January of this year. One bitcoin is presently worth 825.88 on btc-e. The chart below demonstrates this volatility.

Unlike major forex currency pairs which scarcely budge one percent per day, bitcoin prices can rise or fall over thirty percent in a single day. If you know how to trade, you don’t truly need any leverage to make money with bitcoin. With that caution out of the way, let’s get down to business and go over some of the options for leveraged btc trading.

We already wrote about one of the more competitive options for shorting bitcoin and leveraged trading, BTC-E. The Bulgarian exchange offers the popular MetaTrader platform with three to one leverage, shorting capability and a low fee of 0.Trio percent per side.

AVA Trade

AVA Trade is a forex broker that offers bitcoin trading through a CFD. Two bitcoin CFDs are available, Bitcoin Mini and Bitcoin Weekly. The Bitcoin Weekly CFD has a twenty to one leverage and expires every Friday at 21:00 GMT. The Bitcoin Mini only has a two to one leverage but doesn’t expire. Both contracts are using data from BTC-E and AVA Trade adds around Ten$ premium on top of the exchange spread. You can find more about the bitcoin trading conditions here. Here’s a snapshot of AvaTrade’s MT4.

A major flaw of both contracts is the inability to trade them during the weekend. Bitcoin trading is totally decentralized and doesn’t rely on a network of banks for executing trades thus there is no set open and closing time. Unlike forex which trades 24/Five, bitcoin trades 24/7 (except on AvaTrade). As can be seen on the chart, large gaps are frequent on AVA Trade’s Bitcoin CFD due to this policy. AvaTrade does not accept US clients at this time.

Etoro.com

Etoro.com is one of the latest forex brokers to suggest bitcoin trading. Unluckily, the product is not very suitable for day trading as you can only inject and exit the market four times per day. It uses the BitStamp’s data feed as a price reference. You can read more about Etoro’s bitcoin suggest here. Here’s a snapshot of their bitcoin CFD in activity:

Unluckily despite having a dedicated US part of the site (link to http://www.etoro.com/usa) , eToro doesn’t seem to accept US clients at this time. Here’s a part of the Q&A section that deals with this question: ‘’As part of our ongoing optimization process presently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting fresh clients or funds from existing US customers. While you’re here, you are welcome to proceed experiencing eToro through our practice mode, which will stay available and free to all.’’’

Btc.sx

Btc.sx offers a ten to one leveraged product based on BitStamp’s data feed. Similarly to Ava Trade, Btc.sx adds around Ten$ to the spread at BitStamp. You will need a deposit of at least 0.01033 of a bitcoin in order to trade at Btc.sx. At current bitcoin prices of $638, this amounts to around 6.Trio$. Btc.sx is dually incorporated in England and Singapore. The exchange presently accepts only bitcoin deposits, no fiat currency deposits are permitted.

The pic above shows a bitcoin long position. Btc.sx has several limitations that make trading with leverage problematic. The exchange doesn’t support moving the stoploss after entry. When contacted about this, their support team told us that ‘’this feature will be implemented in the next few months’’. Our question is why isn’t it already implemented?

As you can see on the picture, you can only set the stoploss as a distance from the current price (in the pic this is set as fifty points). The default is eighty eight points below entry. This is exactly where my stop was, eighty eight points below nine hundred thirty five at 847. There is a trailing stoploss option but despite my best efforts, I couldn’t make it work. So essentially, once you set your stoploss on Btc.sx, you’re stuck with it.

The high rollover cost also makes leveraged trading at Btc.sx problematic. The currency rollover cost for my position was 0.0094 of a bitcoin, that’s 8.8 US Dollars, far too high for a 1,000 usd position in my opinion. Because the company only permits deposits and withdrawals in bitcoin, it has largely avoided the US Dollar deposit/withdrawal issues encountered by other btc exchanges. Btc.sx does permit US clients.

Bitcoin Options

Besides CFDs, the fresh cryptocurrency has also helped spawn a fresh options market. Presently several companies are in the business of suggesting Bitcoin options. Anyoption.com is one of the more established option houses that offers trading in the virtual currency. You can bet on rising or falling bitcoin prices. Anyoption.com is not an option for US clients, the company doesn’t accept USA traders at the moment. Here are some of the current btc options on suggest.

Predictious

Predictious.com is a betting websites that matches buyers and sellers and doesn’t price the options themselves. Besides betting on bitcoin’s demise or rally, you can also attempt to predict the next winner of the Oscars or bet on which party win control the US Senate after the two thousand fourteen elections. Presently the site takes bitcoin deposits only. Predictious does accept US clients.

What Drives Bitcoin Prices?

Regulation and other deeds by government entities has one of the fattest impacts on the price of bitcoin. The US and Chinese governments are the ones to see. Somewhat favorable comments by US lawmakers in November and December of last year underpinned the bitcoin rally.

At a Senate committee hearing last month a Justice Department official said that ‘’bitcoins can be a legal means of exchange’’. The fresh cryptocurrency can be exploited by ‘’malicious actors’’ and should be subject to ‘’rules to protect people’’, the agency added.

Enlargened bitcoin purchases from China and the adoption of the currency by Chinese online businesses were another driver that helped shove the BTC/USD price from 195.Five at the embark of November to a high of $1090 thirty days later. Baidu, the fattest Chinese search engine embarked to suggest payments in bitcoin. The chart below shows the remarkable November rally.

The muffle of the Chinese authorities was seen as a subtle acceptance signal by market participants. The situation didn’t last long however. On December 7th, The People’s Bank of China barred financial institutions from buying or selling virtual currency or Bitcoin related products. The Bank also demanded that businesses stop with the practice of pricing their products in Bitcoins. BTC/USD opened the day at $906.50 on BTC-E. After the news hit the wires, bitcoin prices crashed from to a low of $551 in only nine hours, a fall of 39%.

December 7th is marked with a yellow rectangle on the chart above. After a puny dead cat bounce to $970 in the next few days, bitcoin prices resumed their decline. BTC/USD marked an interim low of $420 US dollars for one bitcoin on December 18th.

Enhanced Adoption and an Expanding Marketplace

At the embark of 2012, one bitcoin was worth exactly $Four.72. One year later a chunk of the fresh currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.

With the two thousand eight financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to seize is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very plain, enlargened adoption of the cryptocurrency.

According to BitPay, a Bitcoin Payment Service Provider, as of November two thousand thirteen there are over 14,000 merchants presently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay enhanced tenfold in two thousand fourteen and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only ninety nine transactions the year prior.

Some of the notable adopters as of late include Richard Branson’s Cherry Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, suggested the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also beginning to accept the fresh currency as a means for payment.

All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this fresh phenomenon will have a gam up over their competition going forward.

Usage in outlawed activities

The third fattest fundamental driver of bitcoin prices is the enlargened (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment confinements and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over Ten,000 products for sale, 70% of which were drugs that are illegal in most countries. Around three hundred forty different varieties of drugs were suggested on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on two October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Fear Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking disturbance. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately Three.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.

The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an chance to buy some cheap bitcoins. Prices were back to one hundred eighteen two days later.

The 2nd yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally began right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a contraption for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses began accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than eight hundred purchases using Bitcoin on the very first day they embarked suggesting the fresh payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the very first fourteen days since the fresh payment option was suggested.

But what about the supply side?

Traders with practice in other commodity markets are very likely asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an influence on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a fat oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in two thousand fourteen after going up 11.11% last year. The rate of block creation is six per hour with each block worth twenty five bitcoins (around 25k USD). If more mining power goes online and the block generation increases to seven blocks per hour for example, the so called “mining difficulty” will go up until the six blocks per hour average is reaffirmed. On the other palm if miners generate less coins then the difficulty will go down making it lighter to generate fresh coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the fresh cryptocurrency was also embarking to attract the attention of Wall Street. Wedbush Securities, a little known analyst rock-hard put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by ten to one hundred times its current value as the fresh technology partly substitutes traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around twelve Million bitcoins presently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a two to three percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least two percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is presently predominated by large players like Western Union and MoneyGram, WU for example can earn upwards of ten percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than five percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around nine cents at current btc prices.

Extra Bitcoin Resources

There are slew of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides ordinary instructions for setting up your very first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Slew of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the fresh currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from one minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, one mBTC = 0.001 BTC. They still suggest the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates concentrates on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are most likely familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

Bitcoin Trading – the Ultimate Guide to Bitcoins

Bitcoin Trading – The Ultimate Guide

At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The fresh cryptocurrency came a long way from trading below $Four just two years ago. Major online and offline retailers are commencing to add the fresh currency as a payment method. But what exactly is bitcoin?

According to a latest Bloomberg poll, only forty two percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

Bitcoin is a peer-to-peer digital currency launched in two thousand nine by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for two years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

‘’It might make sense just to get some in case it catches on’’

Satoshi Nakamoto, January 17th, 2009.

What’s so special about Bitcoin?

Bitcoin is a cryptocurrency and a fresh and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a entirely electronic form of money.

Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can loosely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send one bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

What’s so special about Bitcoin? There are many arguments on whether the fresh virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is rigorously with the profit opportunities provided by this fresh payment phenomenon. In the next few pages on the fresh digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

Bitcoin Basics

Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle boys or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, entirely eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also permits the bypassing of capital and AML confinements.

In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How to get a bitcoin address

Like we mentioned previously, in order to send or receive bitcoins you will need to have a bitcoin address. You can get a bitcoin address either by downloading the bitcoin client or by getting an online wallet. The two most popular btc clients are Bitcoin-qt and Multibit. The main difference inbetween these two clients is in the size of the block chain that needs to be downloaded. If you determine to go with Bitcoin-qt, have at least ten Gigabytes free space on your hard drive for the block chain. As Bitcoin-qt is the ‘’official’’ bitcoin client, if you can spare ten GB, go for this option. Here’s a page that has step by step instructions on installing Bitcoin-qt.

Multibit is a lightweight version of the bitcoin client. You can read more about it here.

Where are my bitcoins stored?

But where are the bitcoins actually stored? After you install one of the two clients above, you can find your bitcoins in a file called wallet.dat. If you use windows this file will be located in the application data section. If your computer gets stolen or lost and you haven’t made a copy of the wallet.dat file you will lose your bitcoins. It is always recommend to backup this file.

The bitcoins can also be stored in online wallets. There are specialized websites that suggest bitcoin wallet services. However due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can lightly store them offline on your computer. Wallets can be useful for storing petite sums of bitcoins so that you can make quick online purchases. Some of the more popular wallet services are Blockchain and CoinKite.

Btc exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually over 90% of the bitcoins deposited on an exchange are kept offline. A puny five to 10% reserve is kept onsite for instantaneous redemption purposes. There are slew of guides online on how to store/secure bitcoins, go over them. It’s always safer to take care of this process yourself then to trust a third party with a substantial amount of bitcoins.

Bitcoin Advantages

Bitcoin has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of limitations.

Another major plus of the fresh cryptocurrency is the very low cost for sending and receiving bitcoins. While it is possible to send transactions entirely free of charge, it is recommended to pay the petite fee in order to speed up the sending process.

The fee amount depends on the data size of the transaction. A typical transaction is five hundred bytes and carries a fee of 0.0001 BTC. At current prices of $913 per bitcoin, this amounts to a charge of 9.13 cents.

Because the fee is totally dependent on a transaction’s data size and not on the number of bitcoins being sent, a $Ten transfer will carry the same fee as a $Ten Million transfer. The fee will take a 0.913% chunk of a $Ten transfer but that same fee will only take 0.000000913% of a ten Million transfer.

Bitcoin offers benefits to merchants as well, as transactions that involve the digital currency are secure and irreversible. Without the risk of fraud or fraudulent chargebacks, merchants can suggest their products at a discount thereby generating more sales or pocket the difference themselves. In addition, with card processors out of the picture, merchants can save on the percentage cut taken by Visa / MasterCard.

Bitcoin and transparency

The picture above shows some of the latest large transactions recorded in the block chain. The very first transaction is for two hundred five BTC, the equivalent of $187,165 at today’s prices. The long lines of letters and numbers you see in the pic are bitcoin addresses. A bitcoin address consists of 27-34 alphanumeric characters, beginning with the number one or Three. You can have as many addresses as you want, they’re free and effortless to generate.

Notice that there is no name that goes along with the bitcoin address. This is what outside observers mean when they say ‘’ Bitcoin is anonymous’’. Bitcoin is in fact ‘’pseudo anonymous’’. While all bitcoin addresses and transactions are public, the holders of those addresses remain hidden.

The only thing that can be discerned by looking at the block chain is that address 1XXxxxXXXxxxxxxXX sent one hundred Bitcoins to address 3XXxxxXXXxxXXxxXX at a certain time. Who sent the coins, the reason for sending, and the users location is not exposed.

However, keep in mind that as soon as you connect your bitcoin address to your real identity (for example, by purchasing bitcoins online or in a face to face meeting), the pseudo anonymity provided by bitcoin is lost. There are ways to regain the lost anonymity but that is beyond the scope of this introductory article.

Buying Your Very first Bitcoin

But how can you actually get a hold of a bitcoin? The easiest way to acquire bitcoins is to buy them at an online exchange. There are three major bitcoin exchanges, each of them with their own unique properties and a different fee structure.

If you’re European, Bitstamp is your best bet to get some bitcoins at a low cost. The company is based in Slovenia, part of the EU. Deposits by SEPA are free, withdrawals are charged a immobilized 0.90€ fee once the funds are converted to Euros. Because Bitstamp only offers trading in BTC/USD (Bitcoin versus the US Dollar) all Euro transfers are instantly converted to Dollars. If you want to withdraw by SEPA, you have to convert your funds back to Euros.

The fee structure favours big traders and market makers. The basic fee for fresh accounts starts at 0.5% and goes all the way down to 0.2% if you trade over $150,000 in one month.

Yes forex traders, you heard that right, the LOWEST fee structure is 0.Two percent. The 0.2% charge is per side, so you will get hit with this fee whenever you buy or sell bitcoins.

Fortunately, the spread inbetween the bid and the ask price is very low, most of the time ranging inbetween one and two dollars. At a current bitcoin rate of $819, this amounts to an added cost of 0.1 to 0.25%. You only pay the spread if you want to come in a trade right away with a market order. If you placed a limit order to buy and you’re willing to wait until someone wants to sell, you can purchase your bitcoins at a petite discount at the bid and later sell them at the ask, pocketing the spread in the process.

Bitstamp has largely avoided the deposit and withdrawal problems that plague many bitcoin exchanges. With a lack of regulation on the upcoming virtual currency and its checkered past, many financial institutions remain reluctant to get involved with processing bitcoin related transactions. You can deposit funds in USD, EUR, GBP and CHF. US clients are accepted.

Coinbase is very likely the easiest and safest way to purchase bitcoins in the U.S. Unlike BitStamp, Coinbase is not an exchange. They act as a counter-party to all customer trades, you buy or sell your bitcoins directly to Coinbase. The buy/sell fee is 1% on top of the buy/sell spread. The bid/ask is usually close to BitStamp where the rock hard gets its liquidity from. For example, the current bid is at $635.48 and the current ask is $638.07. In addition to this, the hard has daily boundaries on the amount of bitcoins bought/sold. These boundaries are not applied on the individual level. Basically Coinbase has a set amount of bitcoins that it is willing to buy or sell every day. During times or high volatility, users may not be able to buy/sell bitcoins until Coinbase determines to ‘’refill’’ their stock. Here’s a good explanation on this issue from their Customer Support:

‘’The limit you’re watching is Coinbase’s daily limit being reached, not your individual limit. Sometimes the Coinbase site itself will run into a daily rolling limit on purchases or sales if there is an exceptional amount of activity in the bitcoin markets. We put up this makeshift pause to make sure that we have enough funds to accommodate the transfer orders being created. This should be a uncommon exception rather than the general rule however. There is no specific time of the day where this limit starts – it’s on a twenty four hour rolling basis. It might be best to check in at 6am or 7am Eastern Standard Time tomorrow. Sorry for any inconvenience this has caused you – we know this can be frustrating. This is something we’re working on as we speak.’’

Coinbase claims that over 97% of all customer funds are stored offline in bank vaults to prevent theft or loss. If you live in the States, you can lightly link your bank account to Coinbase to facilitate quick and effortless bank transfers.

BTC-E.com

If you’re a forex trader, BTC-E is very likely the easiest exchange to get into. The company offers its own MetaTrader platform. The instrument comes with a leverage of three to one and the capability to brief bitcoin. Shorting is not an option at Bitstamp. You can still sell any bitcoins you already own at these exchanges but you won’t be able to brief bitcoin outright.

The fees on MetaTrader are slightly higher, 0.3% per side compared to 0.2% if you used btc-e’s web interface. If you’re a forex trader btc-e might strike you as the best option of the three. But alas, nothing is as straightforward in bitcoin world.

No one knows who the real owners behind btc-e are. Evidently the headquarters of the company are in Bulgaria and the support staff is more familiar with Russian then with English, but the rest is a mystery. The company operates a complicated deposit and withdrawal process that relays the money through several banks and payment processors before depositing them to your account. If you plan to deposit on BTC-E, make sure to go after their deposit instructions to the letter. Because the deposits go through a web of banks, tracking down a lost deposit is near to unlikely.

On the plus side, the company does suggest deposit and withdrawal by several popular e-wallets like Webmoney, PerfectMoney, Ukash and Paypal (withdrawal only $500 minimum). According to user reviews, deposits and withdrawal by these methods are a lot quicker and smoother compared to bank wires.

BTC-E does accept US clients. However, kicking off from the middle of December 2013, the company stopped processing US dollar wires or any wires connected to a US bank. Here is an email reply to a customer’s question on this: ‘’We don’t accept international wire transfers from US Citizens or from US Banks. All transfers from US Citizens or US Bank will be refused by bank.’’

Other ways to purchase bitcoins

Aside from the exchanges, you can also buy bitcoins on ebay and similar auction sites. Keep in mind that due to the possibility for chargebacks and fraud, bitcoin and other cryptocurrencies trade at a premium on ebay. Face to face meetups are another option to acquire bitcoins. Check localbitcoins.com for bitcoin sellers and buyers near your area. Always exercise caution when doing an offline exchange. Meet during the daytime and in places with a lot of people around. If possible, bring a friend.

We’ll leave the choice of where to buy your very first bitcoin up to you, we hope that our presentation relayed enough information to help you make an informed decision. It all depends on your needs and requirements. Some exchanges are better for trading, others have superior banking relations with bankwire deposit and withdrawal options.

Leveraged Bitcoin Trading

In this section we’ll go over several options for trading bitcoin on margin. We’ll also outline the options to brief the virtual currency. Before we go any further, a caution is in order. Bitcoin prices are very volatile. Prices rose from a low of 195.50 on November 1st to a high of 1,090 by November 30th 2013. From here, the btc price crashed to a low of four hundred twenty on December 18th, only to go back up and retest the 1,000 level in January of this year. One bitcoin is presently worth 825.88 on btc-e. The chart below demonstrates this volatility.

Unlike major forex currency pairs which hardly budge one percent per day, bitcoin prices can rise or fall over thirty percent in a single day. If you know how to trade, you don’t indeed need any leverage to make money with bitcoin. With that caution out of the way, let’s get down to business and go over some of the options for leveraged btc trading.

We already wrote about one of the more competitive options for shorting bitcoin and leveraged trading, BTC-E. The Bulgarian exchange offers the popular MetaTrader platform with three to one leverage, shorting capability and a low fee of 0.Three percent per side.

AVA Trade

AVA Trade is a forex broker that offers bitcoin trading through a CFD. Two bitcoin CFDs are available, Bitcoin Mini and Bitcoin Weekly. The Bitcoin Weekly CFD has a twenty to one leverage and expires every Friday at 21:00 GMT. The Bitcoin Mini only has a two to one leverage but doesn’t expire. Both contracts are using data from BTC-E and AVA Trade adds around Ten$ premium on top of the exchange spread. You can find more about the bitcoin trading conditions here. Here’s a snapshot of AvaTrade’s MT4.

A major flaw of both contracts is the inability to trade them during the weekend. Bitcoin trading is fully decentralized and doesn’t rely on a network of banks for executing trades thus there is no set open and closing time. Unlike forex which trades 24/Five, bitcoin trades 24/7 (except on AvaTrade). As can be seen on the chart, large gaps are frequent on AVA Trade’s Bitcoin CFD due to this policy. AvaTrade does not accept US clients at this time.

Etoro.com

Etoro.com is one of the latest forex brokers to suggest bitcoin trading. Unluckily, the product is not very suitable for day trading as you can only come in and exit the market four times per day. It uses the BitStamp’s data feed as a price reference. You can read more about Etoro’s bitcoin suggest here. Here’s a snapshot of their bitcoin CFD in act:

Unluckily despite having a dedicated US part of the site (link to http://www.etoro.com/usa) , eToro doesn’t seem to accept US clients at this time. Here’s a part of the Q&A section that deals with this question: ‘’As part of our ongoing optimization process presently underway in the US, we have temporarily suspended our service. Therefore, at this time we will not be accepting fresh clients or funds from existing US customers. While you’re here, you are welcome to proceed experiencing eToro through our practice mode, which will stay available and free to all.’’’

Btc.sx

Btc.sx offers a ten to one leveraged product based on BitStamp’s data feed. Similarly to Ava Trade, Btc.sx adds around Ten$ to the spread at BitStamp. You will need a deposit of at least 0.01033 of a bitcoin in order to trade at Btc.sx. At current bitcoin prices of $638, this amounts to around 6.Trio$. Btc.sx is dually incorporated in England and Singapore. The exchange presently accepts only bitcoin deposits, no fiat currency deposits are permitted.

The pic above shows a bitcoin long position. Btc.sx has several confinements that make trading with leverage problematic. The exchange doesn’t support moving the stoploss after entry. When contacted about this, their support team told us that ‘’this feature will be implemented in the next few months’’. Our question is why isn’t it already implemented?

As you can see on the picture, you can only set the stoploss as a distance from the current price (in the pic this is set as fifty points). The default is eighty eight points below entry. This is exactly where my stop was, eighty eight points below nine hundred thirty five at 847. There is a trailing stoploss option but despite my best efforts, I couldn’t make it work. So essentially, once you set your stoploss on Btc.sx, you’re stuck with it.

The high rollover cost also makes leveraged trading at Btc.sx problematic. The currency rollover cost for my position was 0.0094 of a bitcoin, that’s 8.8 US Dollars, far too high for a 1,000 usd position in my opinion. Because the company only permits deposits and withdrawals in bitcoin, it has largely avoided the US Dollar deposit/withdrawal issues encountered by other btc exchanges. Btc.sx does permit US clients.

Bitcoin Options

Besides CFDs, the fresh cryptocurrency has also helped spawn a fresh options market. Presently several companies are in the business of suggesting Bitcoin options. Anyoption.com is one of the more established option houses that offers trading in the virtual currency. You can bet on rising or falling bitcoin prices. Anyoption.com is not an option for US clients, the company doesn’t accept USA traders at the moment. Here are some of the current btc options on suggest.

Predictious

Predictious.com is a betting websites that matches buyers and sellers and doesn’t price the options themselves. Besides betting on bitcoin’s demise or rally, you can also attempt to predict the next winner of the Oscars or bet on which party win control the US Senate after the two thousand fourteen elections. Presently the site takes bitcoin deposits only. Predictious does accept US clients.

What Drives Bitcoin Prices?

Regulation and other deeds by government entities has one of the fattest impacts on the price of bitcoin. The US and Chinese governments are the ones to observe. Somewhat favorable comments by US lawmakers in November and December of last year underpinned the bitcoin rally.

At a Senate committee hearing last month a Justice Department official said that ‘’bitcoins can be a legal means of exchange’’. The fresh cryptocurrency can be exploited by ‘’malicious actors’’ and should be subject to ‘’rules to protect people’’, the agency added.

Enlargened bitcoin purchases from China and the adoption of the currency by Chinese online businesses were another driver that helped shove the BTC/USD price from 195.Five at the begin of November to a high of $1090 thirty days later. Baidu, the thickest Chinese search engine began to suggest payments in bitcoin. The chart below shows the remarkable November rally.

The muffle of the Chinese authorities was seen as a subtle acceptance signal by market participants. The situation didn’t last long however. On December 7th, The People’s Bank of China barred financial institutions from buying or selling virtual currency or Bitcoin related products. The Bank also demanded that businesses stop with the practice of pricing their products in Bitcoins. BTC/USD opened the day at $906.50 on BTC-E. After the news hit the wires, bitcoin prices crashed from to a low of $551 in only nine hours, a fall of 39%.

December 7th is marked with a yellow rectangle on the chart above. After a petite dead cat bounce to $970 in the next few days, bitcoin prices resumed their decline. BTC/USD marked an interim low of $420 US dollars for one bitcoin on December 18th.

Enhanced Adoption and an Expanding Marketplace

At the begin of 2012, one bitcoin was worth exactly $Four.72. One year later a chunk of the fresh currency could buy you a book on amazon ($13.51). On January 1st 2014, buying a single bitcoin would set you back $806.

With the two thousand eight financial crisis still fresh in people’s minds, most wrote off Bitcoin’s rising price as just another ‘’bubble’’. But what a lot of people failed to seize is why the price is going up. While speculation and betting on higher prices certainly played their part in the process, a major reason behind the gains is very plain, enhanced adoption of the cryptocurrency.

According to BitPay, a Bitcoin Payment Service Provider, as of November two thousand thirteen there are over 14,000 merchants presently accepting bitcoins. Two years ago this number stood at few hundred. The number of transactions facilitated by Bitpay enlargened tenfold in two thousand fourteen and crossed the 50,000 mark in November. The payment processor said that 6,296 bitcoin transactions occurred on Black Friday last year, up from only ninety nine transactions the year prior.

Some of the notable adopters as of late include Richard Branson’s Cherry Galactic. You can now buy a private flight into space with your bitcoins. Zynga, the facebook games platform, suggested the bitcoin payment option to players in “FarmVille 2”, “CastleVille” and other games. Major adult websites are also kicking off to accept the fresh currency as a means for payment.

All of these developments point to one thing. The Bitcoin marketplace is expanding at an astounding rate of growth. The businesses and individuals that embrace this fresh phenomenon will have a gam up over their competition going forward.

Usage in outlawed activities

The third fattest fundamental driver of bitcoin prices is the enlargened (or decreased) usage in activities outlawed by governments. Bitcoin’s pseudo anonymity has facilitated dealings in anything from the purchase of contraband like illegal drugs or weapons to bypassing capital and investment limitations and tax avoidance. Government crackdown on these activities tends to suppress the price of bitcoin.

A notable example of this was FBI’s shutdown of the ‘’Silk Road’’ marketplace. The website had over Ten,000 products for sale, 70% of which were drugs that are illegal in most countries. Around three hundred forty different varieties of drugs were suggested on the site. The site functioned as an ‘’Ebay for drugs’’, connecting buyers with sellers and not doing any dealing themselves.

The FBI shut down Silk Road on two October 2013. The alleged chief operator of the site, Ross William Ulbricht (also known as Fear Pirate Roberts) was charged with alleged murder for hire and narcotics trafficking disturbance. The agency confiscated over 26,000 bitcoins from different accounts on Silk Road, worth approximately Three.6 million US Dollars back then. Twenty days later, the FBI reported that they had seized 144,000 BTC thought to belong to Ulbricht.

The chart above shows the bitcoin market’s reaction to the website’s shutdown and the subsequent btc confiscation. Bitcoin prices plummeted from 123.95 to a low of 75.20 on the news. The market didn’t take long to recover however as most took the plunge as an chance to buy some cheap bitcoins. Prices were back to one hundred eighteen two days later.

The 2nd yellow rectangle on the charts marks the FBI’s announcement of the large btc confiscation. The prospect of an US law enforcement agency holding a large chunk of bitcoins spooked markets. The BTC/USD took a dive from 195.20 to a low of 152.49 on the news. But as can be seen on the chart, the spike lower was again used by investors to gabble up coins at a bargain.

It is interesting to note that a major bitcoin rally commenced right after the Silk Road shutdown, somewhat dispelling critics arguments that the virtual currency was mainly used as a device for facilitating drug trafficking. In the months following the site’s closure, several major online and offline businesses embarked accepting bitcoins. These include major US retailers like Overstock.com and Tiger Direct. The CEO of Overstock.com reported that the company logged more than eight hundred purchases using Bitcoin on the very first day they commenced suggesting the fresh payment solution, totalling $130,000. The company estimates that Bitcoin buyers have made $500,000 in purchases in the very first fourteen days since the fresh payment option was suggested.

But what about the supply side?

Traders with practice in other commodity markets are very likely asking themselves why the supply topic is placed last in an article that goes over the drivers of bitcoin prices. The reason is because when it comes to bitcoin, the supply doesn’t have much of an influence on the price. This is because the supply is constant and known beforehand and SHOULD therefore be already priced in. Situations like finding a meaty oil field that significantly depresses oil prices is not possible with bitcoin. Let me explain.

The supply of bitcoins grows by the process called “mining” bitcoins. The supply is expected to increase by 10% in two thousand fourteen after going up 11.11% last year. The rate of block creation is six per hour with each block worth twenty five bitcoins (around 25k USD). If more mining power goes online and the block generation increases to seven blocks per hour for example, the so called “mining difficulty” will go up until the six blocks per hour average is reaffirmed. On the other arm if miners generate less coins then the difficulty will go down making it lighter to generate fresh coins. You can read more about the supply of bitcoins here.

Wall Street Bitcoin Forecasts

With the mark of drug trafficking of the record, the fresh cryptocurrency was also beginning to attract the attention of Wall Street. Wedbush Securities, a little known analyst rock-hard put a forecast of around $98,500 on the price of one bitcoin. The analysts expect bitcoin to rise by ten to one hundred times its current value as the fresh technology partly substitutes traditional payment processors and money transmitters. Bank of America Merrill Lynch wasn’t as optimistic in its forecasts. The Bank’s analysts predict a maximum ‘’fair’’ estimate of bitcoin of $1,300.

The Winklevoss twins told CNBC that a $400 Billion market cap for BTC would be a “small bull case scenario’’. With around twelve Million bitcoins presently in circulation, to reach that market cap one bitcoin has to be worth a fantastic $40,000. The brothers are major investors in bitcoin after getting rich from an early investment in Facebook.

The largest potential for ‘’disruption’’ to the current status quo lies in taking a chunk out of the payment processors market. Visa and MasterCard are estimated to take a two to three percent cut of every card transaction. By using bitcoin instead, merchants stand to improve their bottom line by at least two percent. In addition, because bitcoin transactions are irreversible, there is no possibility for chargebacks and fraud. This reduces the costs of operation by another several percentage points.

Another area ‘’ripe’’ for disruption is the money transfer market. The market is presently predominated by large players like Western Union and MoneyGram, WU for example can earn upwards of ten percent per transaction on international remittances. By comparison, a bitcoin transaction shouldn’t cost more than five percent even after accounting for all exchange and bank wire fees for both the buyer and the seller on each side of the remittance. If no fiat currency is involved, sending and receiving bitcoins is almost free and costs 0.0001 btc regardless of the amount. This is around nine cents at current btc prices.

Extra Bitcoin Resources

There are slew of resources online where you can learn more about bitcoin and its unique properties. Here are some of the major websites that can help you speed up the learning process.

Weusecoins.com Provides elementary instructions for setting up your very first bitcoin wallet and purchasing bitcoins.

The Bitcoin Wiki. Slew of articles on any bitcoin related topic that range from securing your wallet, dealing with scams, mining bitcoins, to a list of online and offline businesses that accept the fresh currency.

Bitcointalk.org The main bitcoin forum. Use it only after you’ve got the basics down by following the previous two links. Use this resource to ask questions about more advanced topics.

Bitcoincharts is the most popular website for following the current bitcoin price. The site provides a rundown of all major btc exchanges by volume. You can also arrange the markets to only display the Euro or the Japanese Yen versus bitcoin on the different exchanges. Like the name says, the website also offers charts with several popular technical indicators. The choice of timeframes ranges from one minute all the way to the Weekly TF. Plus, you get to see the current market depth at the different exchanges.

Bitcoinity.org Another popular charting resource, very similar to Bitcoincharts. Recently switched to mBTC pricing, one mBTC = 0.001 BTC. They still suggest the option to display prices in BTC instead.

CoinDesk.com Coindesk provides daily news on bitcoin and other cryptocurrencies.

DC Magnates concentrates on news about different digital currencies including bitcoin. It was launched by the same team from Forex Magnates, a popular forex industry news website that many of our forex readers are most likely familiar with.

Places to spend your bitcoins

The following three sites provide an interactive map of bitcoin merchants near your area.

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